The government has, at long last, introduced a Bill that places tougher requirements on mastertrusts. Its aim is to address concerns about the risk of a mastertrust failing and members’ pension savings being used to pay for the costs of winding up the scheme. It is one piece of draft pension legislation that has the support of the current Government, Ros Altmann and The Pensions Regulator.
Under the Bill, all mastertrusts must meet, and demonstrate that they have met, five criteria. These are:
Persons involved in the scheme are fit and proper
The scheme is financially sustainable
The scheme funder (broadly the equivalent to a scheme’s principal employer) meets certain requirements so it can provide assurance about its financial position
The systems and processes requirements relating to the governance and administration of the scheme are sufficient
The scheme has an adequate continuity strategy
These requirements are heralded as tough new requirements and that does seem to be the case. Of the various mastertrusts we have been involved with, not all meet these new requirements so there will definitely have to be some work done to bring all existing mastertrusts up to scratch. One interesting requirement is for a scheme funder to only carry out activities that relate directly to the master trust scheme. This will be challenging for some mastertrusts where the key company may not have the master trust as its sole business so we do expect some mastertrust offerings to change because of the Bill.
The Bill also introduces changes to strengthen the legislation to cap exit charges but hopefully this will not be a challenge for most providers.
The Pensions Regulator is required to authorise and then supervise these new mastertrust requirements. It is also to step in and assist with an orderly exit if a mastertrust provider fails or decides to withdraw from the market. This is a new skill set for The Pensions Regulator so it will be interesting to see how it chooses to use these powers and whether it is itself sufficiently resourced to do so. Overall this type of legislation shows again there is becoming more of an artificial divide between what the FCA does and what The Pensions Regulator does and gives added weight to the argument that these two regulators should perhaps be combined.
Action: if, as an employer, you are thinking of transferring your DC pension benefits to a mastertrust do check in advance that it will satisfy these new requirements as not all do, even among some of the very largest mastertrust providers.
Please contact Penny Cogher or your usual member of the team if you would like more information
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