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Master Trusts are trust-based occupational pension schemes which seek to generate economies of scale by serving multiple employers, who may be entirely unrelated. This note looks at the regulatory framework introduced under the Pension Schemes Act 2017, which generally applies only to money purchase benefits.

Whereas traditional trust-based schemes are set up a by a single employer with an interest in it, this may not be the case with Master Trusts as there will not be the same reputational risk. There are different models of Master Trust. Many are set up by a product provider, who installs a group of trustees to run it. In this model, the provider also supplies administration and investment services to the trustees. Employers can use Master Trusts to provide pensions for their workers, rather than setting up their own or using a Group Personal Pension (regulated by the Financial Conduct Authority).

The number of pension savers in Master Trusts has grown with the introduction of auto-enrolment and is expected to grow further. (Master Trust Impact Assessment, October 2017).

In May 2016, the Work and Pensions Select Committee described Master Trusts as a “good fit” with auto-enrolment because they provide ongoing oversight of investments by a trustee board at lower operating costs than single employer schemes.” However, stronger regulation was needed. (HC Deb 579, March 2016).

A consensus developed that the regulatory framework for trust-based occupational pension schemes was inadequate for Master Trusts because:

  • It had developed with single-employer schemes in mind and assumes an employer having an ongoing interest in the running of the scheme.
  • Many Master Trusts were set up to make a profit, which gave rise to the need for a different type of regulation to ensure member benefits are protected.
  • Master Trusts operate on a scale unprecedented in occupational pensions and the collapse of a large scheme has potential to create a greater shock than would be the case with a single employer scheme (Impact Assessment, para 15-19).

Under the regulatory framework put in place by the Pension Schemes Act 2017, the Pensions Regulator (TPR) is responsible for authorising and supervising master trusts against five criteria. These criteria are that: the people running the scheme must be fit and proper; the scheme must be financially sustainable; the funder of the scheme must meet certain requirements; the scheme must have adequate systems and processes; and the scheme has to prepare a continuity strategy. (HC Deb 30 Jan 2017 c756).

The details of the authorisation and supervision regime for Master Trusts are in the Occupational Pension Schemes (Master Trusts) Regulations 2018 (SI 2018 No. 1030). In debate in Parliament, Baroness Buscombe explained:

From 1 October, both existing and new master trust pension schemes will be required to be authorised by the Pensions Regulator and will be subject to ongoing supervision by the regulator to ensure that they are maintaining the standards required at authorisation. Any scheme that opts out of applying for authorisation, or which fails to meet the required standards upon application, will be required to wind up and transfer its members to an authorised scheme (HL Deb 18 July 2018 c101GC)

She said the Government had always been clear that a significant number of schemes are unlikely to meet these standards and will need to leave the market. (Ibid c102).

The new regulatory regime came into force on 1 October 2018 (PN 18-52). TPR issued new figures showing that 30 Master Trusts had wound up or indicated an intention to do so, leaving 58 to apply for authorisation or trigger their exit from the market in coming months (TPR, The current master trust market – latest facts and figures, October 2018).

On 11 October, TPR said it had issued a fine of £5,000 to four trustees who had failed to invest £1.4 million of savings promptly (PN18-53).

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