Adrian Boulding, Director of Policy, NOW: Pensions
Over the winter, all master trusts who wish to continue operating in the UK are going to be submitting applications to The Pensions Regulator (TPR) for authorisation.
This new regulatory regime is something NOW: Pensions has long campaigned for and wholeheartedly supports in order to ensure adequate protection for savers.
What is a master trust?
A master trust, like NOW: Pensions, is a multi-employer occupational pension scheme where each employer has its own division within the master arrangement.
There is one legal trust and therefore one trustee board. The Trustee retains decision making independence for its activities on things such as investment and its service providers under a trust- wide governance structure.
What are the benefits of master trusts?
Master trusts offer employers the benefit of strong governance oversight but with the costs shared across all participating employers.
They act for the collective good of the whole membership and enable small and large firms alike to benefit from high standards of governance as the independent board of trustees that oversees the running of the scheme has a statutory duty to ensure that it is being run in the best interests of its members at all times.
This means members have the comfort of knowing there is an independent body overseeing decisions on crucial issues such as charges, investment strategy and administration.
For employers choosing an auto enrolment pension provider, the master trust structure has proved to be the most popular choice as it can offer the perfect balance between high quality and low maintenance. As a result, over half of auto enrolled savers are today in a master trust arrangement.
Why is tighter regulation needed?
At the moment, master trusts are subject to very little regulatory scrutiny, particularly when compared with the alternative contract-based schemes run by insurance companies.
Data from TPR shows that there are currently 81 master trust schemes in operation and not all are going to be sustainable over the long term.
The authorisation regime is intended to ensure that those master trusts operating in the market are stable, well run and financially sound. Smaller and weaker ones will be weeded out which, in the long run, is in consumers’ interests.
In order to be authorised, there are five areas that master trusts will have to evidence. These include fit and proper persons running the scheme, financial sustainability, scheme funder, systems and processes and continuity strategy.
Master trusts can submit their applications between 1 October 2018 and 31 March 2019 with TPR announcing those who have been authorised between 1 April 2019 and 30 September 2019.
Our authorisation project team has been running for a year now, and during the winter we will be submitting our formal application. The process is both detailed and thorough, and we expect to be submitting over a thousand pages of evidence to the regulator, with vetting by our lawyers and auditors.
It’s a mammoth task, but one which we welcome as it ensures that all those saving for retirement in a pensions master trust are fully protected. You only get one lifetime to save in, and risks should not be taken with those lifetime savings.