Since the introduction of automatic-enrolment, many new master trusts have entered the pensions market, offering a solution for employers that want the benefits of a trust-based scheme without the cost and time of setting up and running their own arrangement. While there are clear advantages to providing defined contribution (DC) arrangements on a larger scale, there are increasing concerns that some members may be at risk from poor-quality master trusts that are not financially sustainable.
To address these concerns, the Pension Schemes Bill will introduce a new regulatory regime for master trusts. Under the new legislation, master trusts will only be able to continue operating if they meet certain conditions and have been authorised by the Pensions Regulator (TPR). TPR will have new powers to intervene if master trusts are at risk of failing and, ultimately, to withdraw authorisation. It will also supervise master trusts more closely on an ongoing basis.
The bill is expected to have a significant impact on the master trust market as providers decide whether they can and want to move forward into this brave new world. It is currently expected that the bill may receive Royal Assent around April 2017, with regulations following later in 2017 and into 2018.
Employers already using master trusts should contact their provider to check how the new requirements affect their master trust, what changes are likely to be made in order to meet the new requirements, and whether there will be any impact on the charges paid by the employer and its employees.
If their master trust will be seeking authorisation, employers will need to consider whether it will continue to meet their needs, taking into account any changes or increased costs. If they have concerns, employers may want to review the market and look at changing provider or re-shaping their pension provision.
If an employer’s master trust is to be withdrawn, they will need to confirm how the withdrawal process will be managed and think about what alternative pension arrangements they want to put in place.
For employers in the process of signing up to a new master trust, the uncertainty surrounding the implications of the bill does not necessarily mean such plans need to be put on hold. However, they should speak to their advisers about whether there are any additional questions they should ask, or steps they should take, before signing up or transferring funds from a previous pension arrangement.
In most cases, employers should be able to find an appropriate way forward, particularly if there is a pressing need to get the master trust arrangement in place. But, if employers are not comfortable with the long-term outlook, or if discussions are still at an early stage, they may prefer to wait until the position is clearer.
Naomi Brown is associate director at law firm Sackers