What lies ahead for master trusts

Master trust authorisation is ensuring high standards in this growing market to better protect the nearly 14 million people saving into these schemes.

All expected applications from existing master trusts have now been filed – 38 in total – and each one contains submissions from master trusts about how their scheme meets the standards laid out in law. For those schemes exiting the market, we continue to oversee the process and ensure trustees are taking the right steps to protect savers when they are moved to an alternative arrangement.

After first evidencing that they meet the authorisation standards through an authorisation application, supervision will ensure schemes continue to satisfy us that they meet those criteria.

Supervision is an integral part of The Pensions Regulator’s new approach to working more closely with a greater number of pension schemes across a range of areas, not just master trusts. By working proactively with schemes through a range of new approaches we are able to more clearly set out our expectations, understand the impacts of any risks on savers and take action where appropriate.

For master trusts, supervision is important to firstly make sure schemes continue to meet the authorisation criteria – including that the people involved in the running of the scheme remain fit and proper, systems and processes are sufficient, and the scheme continues to be financially sustainable.  It will also help us to monitor if other legal obligations are also being met, spot material risks and issues early and take action as appropriate, and enable us to seek to improve the way that workplace pension schemes are run.

Schemes which are granted authorisation will receive a letter providing more information about the supervision requirements.

To identify any significant issues in a scheme there are two reporting requirements for trustees which allow us to manage and mitigate the impact of scheme changes:

  • Significant events which may indicate that a master trust no longer meets the authorisation criteria.
  • Triggering events which may present an immediate threat to the continued operation of the scheme.

All schemes will have to send annual submissions to us, including the chair statement, scheme annual report and accounts, scheme funder accounts and a supervisory return, which will ask for updates against the five authorisation criteria. More information about these requirements, as well as our Supervision and Enforcement Policy, is available on our website.

Schemes will be expected to be open, honest and transparent and proactively volunteer information to us about any material developments, risks and issues.

For example, we must be told if there are any changes to those running schemes or which might mean they no longer meet the fit and proper requirements. We will ask trustees to submit information or documentation, so we can check them again.

We take a risk-based approach to supervision. How often we interact with authorised master trusts will depend on a range of factors including the size of a scheme, and the particular risks or issues which are present. Any new schemes entering the market will have to get authorisation first and will then be subject to scrutiny as they get up and running.

When the authorisation of existing schemes is complete later this year we will have a better overview of the full master trust market and be able to provide more information to master trusts about the timescales and intensity of supervision for their specific scheme. We will tell schemes what information they will be expected to send to us, if they will be assigned a dedicated supervisor and how often we will expect to speak to or meet with the scheme.

Already our interactions with master trusts in the lead up to and through authorisation have reaped positive rewards in building strong relationships with schemes and identifying where improvements need to be made.

Supervision will enable us to identify problems early and work with schemes. But we will also, where necessary, enforce against master trusts and, ultimately, we have the power to de-authorise any scheme which we are no longer satisfied meets the authorisation criteria.

The authorisation and supervision of master trusts will better protect members. If something goes wrong there’s already a plan in place and money put aside to put it right, without impacting on savers. We know who the people running the scheme are and they have been through checks to make sure they’re capable to perform their role.

The number of members and amount of assets will only continue to grow as pension pots accumulate and smaller schemes look to consolidate.

The role of TPR will be ever more important in ensuring the standards in master trusts continue to meet those laid out in law and take action when they are not.

Kim Brown
By Kim Brown
Head of Master Trust Authorisation