Looks at provisions to regulate Master Trusts (a kind of pension scheme used by many employers for auto-enrolment) to be introduced under the Pension Schemes Act 2017.Jump to full report >>
Master Trusts are trust-based occupational pension schemes which seek to generate economies of scale by serving multiple employers, who may be entirely unrelated. Whereas traditional trust-based schemes are set up a by a single employer with an interest in it, Master Trusts are set up by a product provider, who installs a group of trustees to run it. The provider also supplies administration and investment services to the trustees. Employers can use Master Trusts to provide pensions for their workers, rather than setting up their own or using a Group Personal Pension (regulated by the Financial Conduct Authority).
In January 2017, there were 7.1m members and £10bn assets in 87 Master Trusts. This grew from 0.2 million members in 2010 as a result of requirements on employers to auto-enrol workers into workplace pensions, and is forecast to grow further. (Master Trust Impact Assessment, October 2017). Over half (59%) of individuals auto-enrolled by March 2017, had been enrolled into a Master Trust (PPI, The Future Book 2016, chart 4).
In May 2016, the Work and Pensions Select Committee described Master Trusts as a “good fit” with auto-enrolment because they provide the “ongoing oversight of investments provided by a trustee board at lower operating costs than single employer schemes, through economies of scale from pooling administrative functions”. However, it supported the Minister’s call for a Pensions Bill to introduce stronger regulation of Master Trusts. It recommended that a Bill should make provision for the Pensions Regulator to have power to enforce: minimum financial and governance standards for market entry; ongoing requirements for Master Trust schemes, which might include making compliance with the Master Trust assurance framework mandatory; and measures to protect member assets in the event of a Master Trust winding up. (HC Deb 579, March 2016).
A consensus developed that the regulatory framework for trust-based occupational pension schemes was inadequate for Master Trusts because:
The Master Trust Assurance Framework developed by the Pensions Regulator (TPR) and the Institute of Chartered Accountants in England and Wales addressed some issues but was voluntary and did not address risks relating to financial stability and ensuring the provider holds sufficient capital in reserve.
Under the regulatory framework put in place by the Pension Schemes Act 2017 the Pensions Regulator (TPR) will be responsible for authorising and supervising master trusts against criteria relating to systems and processes, financial sustainability and that people running the schemes are fit and proper. Authorisation is expected to start from October 2018. However, to protect members of existing schemes, some provisions took effect from the time the legislation was introduced to Parliament (HC Deb 30 Jan 2017 c756). TPR explains what schemes need to do in the meantime:
The measures for authorising and supervising master trusts to be intoduced under the 2017 Act will start after regulations have been developed. DWP consulted on draft regulations between 30 November 2017 and 12 January 2018 - see Draft Occupational Pension Schemes (Master Trusts) Regulations 2018. On 27 March, TPR launched its consultation on a Master Trust Code of Practice. The purpose was to “provide master trusts with the clarity they need on how to apply for authorisation and the matters that will be taken into account in deciding whether a master trust should be authorised and remain so.”
Commons Briefing papers CBP-7758
Author: Djuna Thurley