Regulation  

How master trusts are regulated

  • Describe some of the bases on which master trusts will be assessed
  • Describe what happens to a master trust if it does not get authorisation
  • Identify what is needed to demonstrate financial competence
CPD
Approx.30min
How master trusts are regulated

In this article, we explore the new regulatory standards for Master Trusts and explain the demanding authorisation process every scheme open to new business has been through in 2019.

A healthy choice of pension scheme types exists in the workplace pension market across Contract, Own Trust and Master Trust (MT) governance styles.

MTs are one of the most popular scheme types and account for just over half of all retail schemes open today to new business, and well over 7m individuals save in them for their retirement.

Understanding how well MTs are run has historically been a time consuming activity where assumptions had to be used and subjective decisions reached. 

However, following the positive growth created by auto-enrolment there is growing concern that just one provider failure could now have catastrophic impact on the public’s trust in the pension industry.

In addition, individuals could lose their incomes in retirement and the government could be forced to support pensioners left in poverty.

Aware of these concerns, the government introduced the Pensions Schemes Act 2017 and the Occupational Pension Schemes (Master Trusts) Regulations 2018. 

These legislated standards are now being introduced by The Pensions Regulator (TPR).

They also provided TPR with new statutory objectives to:

  • Protect the benefits of pension scheme members
  • Minimise any adverse impact on the sustainable growth of an employer(in relation to the exercise of functions under Part 3 of the Pensions Act 2004)
  • Promote, and improve understanding of, the good administration of work-based pension schemes
  • Maximise compliance with the duties and safeguards in the Pensions Act 2008.

In effect, the legislation gives TPR teeth and the powers to regulate schemes while also acting as police, judge and jury.

Authorisation

The authorisation process started in October 2018 and gave existing MTs until the end of March 2019 to apply to TPR. Any scheme that did not apply for or failed to gain authorisation cannot operate and is required to wind-up and transfer members to another solution.

We had expected all applications to be processed within four months of the application closing date.

However, this has not happened and there are still a handful of schemes awaiting decisions.

One positive outcome is that once a scheme has been authorised the information becomes public and we can now all check which schemes are authorised by visiting:

thepensionsregulator.gov.uk/en/master-trust-pension-schemes/list-of-authorised-master-trusts

It is worth noting that this list is still being populated and the definitive one is not expected to be compiled for a few more weeks.

Authorisation was not straightforward and it was costly in time and money, especially where process changes were required. Schemes also had to pay TPR to process their application.

We already know that a number of schemes have decided not to apply for authorisation or have agreed to be taken over if they receive authorisation. 

Collectively these changes are reported to half the number of authorised MTs between 2018 and 2020.

Interestingly, the tougher standards have already led one new provider to make a commitment to open a new MT in 2020. It will be interesting to see if others follow.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Which of the following is not a statutory objective of the Pensions Regulator:

  2. What happens to master trust that fails to gain authorisation

  3. It is not possible to find out which schemes have been authorised, true or false?

  4. Which of the following is NOT a trigger event, which could mean a master trust would struggle to be compliant:

  5. TPR does not require evidence of competence, true or false?

  6. Which of the following is NOT required as supporting evidence of financial competence:

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe some of the bases on which master trusts will be assessed
  • Describe what happens to a master trust if it does not get authorisation
  • Identify what is needed to demonstrate financial competence

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