The Pensions Regulator (TPR) has warned thousands of people are at risk of losing their savings after being encouraged by the government to take out pension plans.
The fear is that dozens of companies providing auto-enrolment pensions under the new scheme are ‘too small to survive.’
Up to 250,000 ‘at risk’
Independent experts believe up to a quarter of a million people who have put their savings into so-called master trust pensions could lose their money.
This type of pension is popular with the 1.8 million British companies who have fewer than 30 staff who are currently being signed up using the auto-enrolment programme.
TPR executive director, Andrew Warwick-Thompson, said: “There is a risk of these schemes falling over. There is a risk that members might lose their money.”
However, he was quick to reassure people that if their money was placed with asset managers who are regulated by the Financial Conduct Authority (FCA) it would be safe.
“This will be the vast majority of cases,” he said.
The regulator is also concerned about some of the people in charge of master trust schemes.
Mr Warwick-Thompson said some of the small pension providers ‘may not be run by competent people’. Even where directors are qualified, providers do not always make it clear where the savings are invested, or who owns the schemes.
The big pension providers – known as contract-based schemes – come under the scrutiny of the FCA – the UK’s financial regulator. Master trust pensions are overseen by The Pensions Regulator (TPR) which is a lower level of supervision.
Expert advisor Nick Keppel-Palmer said: “There is not so much member protection in the master trust world. If they go down, the members’ money won’t be protected.”
Malcolm Small, chairman of the Retirement Income Alliance, claims that only 10 out of 80 master trusts are run by reliable operators because many are too small or not sufficiently profitable.
The government has said it is aware of the issues and was working to protect employees’ savings.
Former pensions minister Baroness Ros Altmann said: “We are determined to ensure the necessary protections are in place. Doing nothing is not an option, as ensuring long term security and protection are paramount in pensions.”
The Treasury is looking at whether supervision of master trusts should be beefed up. It is considering whether there should be an approved list of providers to make choosing a pension company easier.
Mr Warwick-Thompson said for TPR: “We would like to have a strategy in place where, if there was a mass failure of some of these small schemes, we’re all ready to move in and we have a plan of action in place.”