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The Pensions Regulator (TPR) is being given new powers to protect auto-enrolment pensions that use master trust schemes.

The concept is sound enough: SMEs seeking a way to auto-enrol their employees are choosing master trust pension schemes, that is, multi-employer schemes where each employer has its own arrangement within the scheme.

Being part of a master trust gives an employer simplicity, expediency and (usually) lower operating costs than a single employer scheme, but TPR has for some time been warning of potential governance issues.

That has led the Work and Pensions Select Committee to urge action in closing the ‘gaps’ in pension regulation that could allow unstable master trusts into the market, putting at risk the employer schemes within them.

Master Trust Assurance

TPR already operates an assurance scheme for master trusts. The scheme is a “framework (that) provides an independent review against a defined set of governance objectives.”

Yet at the time of writing, only 9 of the 72 master trust schemes listed on the TPR website meet the TPR’s own assurance standard.

That’s particularly worrying given the prevalence of master trusts in the market. As Morten Nilsson, CEO of NOW Pensions, told Payroll World: “Over half of all pension schemes chosen by employers for auto-enrolment have been master trusts. As a result, workers saving in master trusts represent the biggest group of savers in the pensions industry, with around six million in a master trust arrangement.”

New measures

There’s nothing inherently wrong with a master trust. A well-run master trust scheme provides standards of governance single employer schemes would do well to match, with an independent board of trustees under a statutory duty to act in the best interests of the scheme at all times.

Yet a new Pensions Bill, announced in the Queen’s Speech, will create greater powers for TPR to authorise and supervise these schemes and take action when necessary. The bill will also require master trusts to meet strict new criteria before they enter the market.

Lesley Titcomb Chief Executive at The Pensions Regulator (TPR) said:

“We have voiced concerns for some time about the need for stronger legislative standards for master trusts and have worked with government and other regulators to improve levels of protection for members.

“We have been calling for a significantly higher bar regarding authorisation and supervision, and we are pleased that today’s announcement proposes to give us the power to implement these safeguards.

“We look forward to working with government over the coming months to develop the strategic application of these proposed new powers to ensure master trusts are strong, durable and well placed to deliver good member outcomes.

“We continue to believe that well run, scaleable and sustainable master trusts, along with GPPs, are a good choice for employers seeking to comply with their automatic enrolment duties.”

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