Master trusts: make sure your provider is up to scratch

Since pensions auto-enrolment was introduced in October 2012, the number of “master trusts” operating in the UK has grown significantly to around 90, with over 7 million members and assets of £10 billion under management. A master trust is a type of pension scheme established under trust, intended to be used by employers who are not connected to each other. The model provides a number of advantages as well as the scale of a trust based arrangement without the time, expense and risks of an employer operating its own occupational pension scheme. 

New authorisation and supervision requirements

Many people in the pensions industry recognise that service levels from a number of new providers have not been up to scratch and that the level of regulation and protection offered to members has fallen short compared to traditional trust based pension schemes. As a result, the Government is proposing a new system to regulate master trusts from October this year, consisting of new authorisation and supervision requirements.

A master trust will only be allowed to operate if it has prior authorisation from the Pensions Regulator (“tPR”) and, once authorised, it will be subject to ongoing supervision from tPR. Civil penalties will be imposed on anyone found to be operating a master trust without authorisation. TPR will also have the power to put Trustees on notice of a “triggering event” in relation to the scheme – effectively compelling the Trustees to action a continuity plan which can lead to the winding up of the scheme.

Action points

If you currently participate in a master trust, investigate and confirm with your provider whether they will meet the new authorisation and supervision requirements before they come into full force in October this year. Although tPR’s sanctions apply against the master trust provider rather than companies participating in the trust, clearly the potential for tPR to withdraw authorisation from your pension provider could create a degree of disruption for your employees.  

You should also review your pension provider from time to time to check that they are producing an effective return for your members. To help with this, a pensions management committee may be set up to oversee operation of the pension scheme. Typically this will comprise a cross section of finance/HR experts from within the company, together with member representation, responsible for reviewing and monitoring the pension provider’s performance and acting as an interface between the company and the pension scheme. 

Putting this type of structure in place helps ensure that any problems in the operation of the scheme are identified at an early stage, and, over time, helps promote good scheme administration and better pensions outcomes for your members.

Please do get in touch if you would like to discuss any of the issues raised in more detail.