Pension master trusts facing deadline

There are just days left for 38 pension master trusts to either apply for regulation or leave the market.

Under new rules The Pensions Regulator (TPR) has a duty to register master trusts if they want to continue operating and ensure that savers money will be safeguarded and the firm is financially sound.

Auto enrolment

Most large companies run their own direct contribution pension schemes, but smaller firms with just a few employees can opt to join together with others in a master trust so they can meet their auto enrolment obligations.

Such a scheme is run by a number of independent trustees for the good of its members, but concerns were expressed that some are too small to survive which could threaten the savings of anyone invested in them.

Risk

In early 2016 TPR executive director, Andrew Warwick-Thompson, had warned: “There is a risk of these schemes falling over. There is a risk that members might lose their money.”

But he was quick to reassure savers that if their money was placed with asset managers who are regulated by the Financial Conduct Authority (FCA) it would be safe.

New rules

TPR decided new rules were needed to tighten up the market place and master trusts must now hold enough capital to cover the worst case scenario of having to transfer their members to another scheme or winding up their own with any cost to the savers.

Any trust wishing to stay in the market will have to provide evidence in five areas:

  • Run by fit and proper persons
  • Financial sustainability
  • A scheme funder
  • Systems and processes
  • A continuity strategy

Applications

Since launching the new process TPR has authorised just one trust, but has applications for a dozen more.

Eight have already left the market and another 31 have indicated their intent to do so once they have transferred their members to an alternative scheme or another appropriate vehicle.

Peak

TPR head of master trust authorisation and supervision Kim Brown said the regulator was prepared for a peak in applications before the March 31st deadline.

But she added: “Submitting the application is not the end of the process and it is definitely not a case of sitting back and relaxing.

Face to face

“Subsequent engagement, including face to face meetings, will take place between TPR and key stakeholders involved with the operation of the master trust, as well as with the trustees.

“Equally, post authorisation, we will move into the new landscape of heightened supervision and the bar will continue to rise, and quite rightly so.”