In the Queen’s Speech in May, it was announced that there will be a Pensions Bill before the end of the Parliamentary session. This Bill will address a number of areas including improving protections for savers in master trusts like NOW: Pensions.
What are master trusts?
A master trust 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?
For employers choosing an auto enrolment pension provider, the master trust structure can offer the perfect balance between high quality and low maintenance. Over half of all employers have selected a master trust as their auto enrolment provider, that’s around 6 million workers saving into this type of scheme each month, resulting in the biggest group of savers in the pensions industry.
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Master trusts offer employers the benefit of a governance function but with generally lower operating costs and greater simplicity and expediency than a single employer scheme. They act for the collective good of the whole membership and enable even small firms 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.
Why is tighter regulation needed?
Not all master trust providers are the same and with over 70 master trusts in the market, not all are going to be sustainable over the long term. In order to protect savers, there are five key areas that we believe need to be addressed:
- Minimum market entry criteria including stringent tests to assess quality, governance and robustness of the business plan.
- Qualified trustee body which is responsible for the oversight of the product to ensure that the best interests of the members are met.
- A duty to maintain an up to date plan for the orderly wind up of the scheme and release of members’ funds to alternative pension vehicles.
- Wind up plans to show where the finance will come from to pay for all the administrative costs of dispersing the trusts’ assets to new homes.
- A regulatory regime which is able to proactively spot inadequate behaviours and governance with teeth to enforce best practice.
Master trusts have a critical role to play in the delivery of auto enrolment, and there is much about the structure that is hugely beneficial. Tightening regulation will help to ensure that savers are adequately protected regardless of which type of scheme they are in, helping to protect the reputation of auto enrolment both now and in the future.