What impact will the new regulations have on the success of the master trusts?

A new Pension Schemes Bill, published October 20th, gives The Pensions Regulator greater control over the future of millions of UK workers.

The bill, which was announced by the government last week, will allow The Pensions Regulator to impose stricter standards of governance on multi-employer schemes and can close down those that are not performing to standard.

Multi-employer schemes, also known as master trusts, have multiplied since auto-enrolment was introduced in 2012 and now have around 4 million members, which is expected to reach 7 million by 2030.

The trusts have played an important part in auto-enrolment. "Put simply: If they didn't exist, master trusts would have to be invented" says Peter Walker, COO of Smart Pension, but "Only 10 have MAF accreditation, so far it's voluntary, it's clear we need to be looking at legislation to make it mandatory going forward." he said.

Morten Nilsson, Chief Executive of NOW: Pensions says, "employees would be shocked to know they're being auto-enrolled in to schemes with no capital." Nilsson explained that the current process to set up a master trust simply entails sending a form to HM Revenue and Customs and The Pensions Regulator with no other formal guidance or control.

For the first time, master trusts will have to be authorised by the regulator before they can open for business.

To continue operations, they will have to meet a set of criteria such as the financial sustainability of the scheme, the systems and processes needed for good governance and how members' benefits will be protected if a master trust closes and seeks to wind up.

Otto Thoresen, Chair of NEST, told delegates at the PLSA conference last week says that the announcement is "as expected and not dramatically different to what we thought, it's a little late but we welcome it."

With around 70 master trusts controlling £9billion in assets there is potential for further problems if not handled carefully.

Patrick Heath-Lay, Chief Executive of The People's Pension hopes that "many conversations" will happen "we need to all come together to avoid fallout, and to make sure we're not forcing people out with the new rules."

To remain in the market master trusts will also have to demonstrate on an ongoing basis that they continue to meet the strict authorisation criteria, including provisions to ensure member funds are protected in the event of a scheme wind up.

Emma Douglas, Head of DC at Legal and General Investment Managers and also speaking at the annual conference, said she was concerned about the bad press on master trusts, but the bill will hopefully see the end of these 'cowboys-are-us' schemes.

Douglas says the regulations "are designed to flush out those that are not capable, but it is important to support the master trusts and not destroy the (master trust) brand and the success they have had. We should be using quality master trusts as a model rather than reinventing them totally"

The Pension Regulator assures the industry they will use their "new powers to ensure master trusts are strong, durable and well placed to deliver good member outcomes."

First published 24.10.2016

ceri.pugh@wilmingtonplc.com