How master trusts are regulated

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. 

 Master trusts are one of the most popular scheme types and account for just over half of all retail schemes open today to new business

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.