Over 1m employers and 10m employees are now using workplace pension schemes.
Opportunities for advisers have been created by the new standards for master trusts and the triennial re-declarations of compliance every employer must complete. We explain these below.
The market is made up of contract schemes, own trusts, and master trusts.
Contract schemes are regulated by the Financial Conduct Authority, while trust based schemes are overseen by The Pensions Regulator.
Different sets of rules for what is, in reality, one consumer outcome can be confusing and makes comparisons across the market difficult.
Looking at the retail workplace pension propositions open to new business, it splits along the following lines: 28 per cent contract, 12 per cent own trust, 60 per cent mast trust (according to Defaqto).
However, this is about to change though. TPR has introduced tougher regulations for master trusts available and it is already understood that some will not meet them.
Master Trusts – the new standard
TPR now requires all master trusts in operation before 1 October 2018 to either pass their new standard or close.
Those wishing to remain in business were required to submit their application, along with a fee of £41,000, before 31 March 2019.
However, ten schemes have received short extensions.
Those who did not submit an application are now going through the closure process and transferring their members to new providers.
Those who submitted an application are now awaiting the monthly TPR update which declares trusts that have passed.
The first of these was published on 20 February, announcing that LifeSight from Willis Towers Watson had passed the assessment and become the first authorised master trust.
So, what is the new standard?
The Pension Schemes Act 2017 and the Occupational Pension Schemes Regulations 2018 have given TPR statutory objectives and new powers to meet them.
This has resulted in a new standard for master trust operators. In essence, master trusts need to be able to demonstrate that their scheme meets the required standards across the following criteria:
- Fit and proper: all the people who have a significant role in running the scheme can demonstrate that they meet a standard of honesty, integrity and knowledge appropriate to their role
- Systems and processes: IT systems enable the scheme to run properly and there are robust processes to administer and govern the scheme
- Continuity strategy: there is a plan in place to protect members if something happens that may threaten the existence of the scheme, including how a master trust will be wound up
- Scheme funder: any scheme funder supporting the scheme is a company (or other legal person) and only carries out master trust business
- Financial sustainability, including business plan: the scheme has the financial resources to cover running costs and also the cost of winding up the scheme if it fails, without impacting on m
Following its first update on schemes progression through the new authorisation system on 28 February 2019 and last updated for 31 March, TPR released the following information on the 90 master trusts they were following:
- 3 authorised
- 27 application made
- 10 application extensions issued
- 6 decision not known
- 35 exiting
- 9 exited
From this we can conclude:
- At least 3 master trust schemes will be in operation in the new landscape
- 30 per cent of schemes hope to be in operation
- 18 per cent of schemes have yet to apply
- 49 per cent of schemes have closed or are closing
With the passing of the deadline of the 31 March, this position will change. That said, we know for definite that nearly half of schemes have decided to shut up shop.
Defaqto data also tells us that three off-the-shelf ‘Own Trust’ propositions have ceased to be available in the last six months.
Perhaps this indicates less of a desire for this type of workplace pension solution?
To summarise, the number of schemes available is reducing.
Those employers in schemes that are closing may well now be looking for advisers to help them avoid issues in the future.