The government has published its new Pension Schemes Bill, which lays out stricter operating criteria for master trusts and begins the process of capping early exit charges for members of workplace pension schemes.
The bill, published yesterday (20 October 2016), aims to boost consumer protections by creating a new approval regime for master trusts and giving new powers to The Pensions Regulator (TPR) to allow it to intervene where schemes are at risk of failing.
Master trust schemes will now have to meet five key criteria. These include ensuring that the parties involved in the scheme are fit and proper, that the scheme is financially sustainable, that the scheme funder can meet certain requirements to provide assurance about their financial situation, that the administration and governance processes are sufficient, and that the scheme has an adequate continuity strategy.
The additional protections were first unveiled in background briefing documents following the Queen’s Speech in May 2016.
The Pension Schemes Bill also makes changes to legislation around pension charges, helping to introduce a cap to prevent early exit charges from creating a barrier for workplace pension scheme members wanting to access their retirement savings early. This aims to ensure that scheme members can take advantage of the pension freedoms without being penalised by early exit fees.
Richard Harrington, the minister for pensions, said: “We are helping to create a culture of saving across the country and have delivered much needed change to our pension system to make saving easier, fairer and safer for all.
“We want to make sure that people saving into master trusts enjoy the same protection as everyone else, which is why we are levelling up that protection, to give these savers more confidence in their pension schemes.”
Lesley Titcomb, the chief executive at The Pensions Regulator, added: “We are very pleased that the Pension Scheme Bill will drive up standards and give us tough new supervisory powers to authorise and de-authorise master trusts according to strict criteria, ensuring members are better protected and ultimately receive the benefits they expect.”
Nathan Long, senior pension analyst at Hargreaves Lansdown, said: “This is the death knell for badly run master trusts, crucially driving up the levels of protection for members.
“Many current members will not have chosen membership, having been enrolled automatically by their employer. No member should lose their accrued pension savings as a result of a pension scheme getting into difficulties. This legislation looks to address the vulnerability that had existed within master trust regulation up until now and this means the cost of wind-up should not fall onto members.”