A few years ago we started to stamp our feet about master trusts. As automatic enrolment successfully swept through businesses and more and more people were being put into workplace pensions, master trust schemes grew in popularity.
They are defined contribution (DC) schemes for unconnected employers to meet their legal duties. But we, and others, felt that the existing legislation for DC schemes was insufficient to properly regulate master trusts as they grew in size, both in terms of the number of members and the amount of money being saved into these schemes.
New legislation was brought in and we are now less than a month away from authorisation, which will see every master trust having to meet certain criteria before they can continue to operate or set up in the market.
After years of hard work and preparation, including writing codes of practice and guidance and working closely with the industry, from 1 October 2018 existing master trusts will have six months to file an application to us.
They must provide evidence that demonstrates that: the people running the schemes are fit and proper; the master trust has good systems and processes in place; a continuity strategy sets out what will happen in case of any problems; there is a funder behind the scheme; and the scheme is financially sustainable.
This will ensure higher standards in the market and make sure pension savers in master trusts are better protected.
To support schemes we introduced a voluntary readiness review process, where evidence from an authorisation application could be submitted to us. The 33 master trusts which chose to take part all told us that the process was really helpful. We published scheme-specific and general feedback to provide insight and clarity for all schemes intending to apply for authorisation.
Inevitably some schemes have decided that they won’t be applying for authorisation and we have seen 24 schemes officially indicate that they will wind up, three of which have already exited the market. We expect there to be more consolidation in the coming months.
All the evidence we are seeing is that there is a healthy consolidation market from a wide range of master trusts who are actively taking on schemes which are choosing to exit before authorisation commences. So far we have seen no evidence of schemes being unable to find another provider to take them on.
We are monitoring exits, supporting schemes to wind up and exit the market, making sure that members are transferred to another appropriate provider and their pensions are protected.
Now it is over to master trust schemes to prepare their authorisation applications and submit them when they are in the best position to demonstrate that they meet the authorisation criteria, to deliver stronger protection for millions of savers.
By Kim Brown
Head of Master Trust Authorisation and Supervision