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Does the DWP and the Pensions Regulator really have mastery of the new Master Trust requirements?

The Department of Work and Pensions (DWP) and the Pensions Regulator (tPR) appear to be approaching Master Trusts from the back foot and from a slightly odd position. 

They both seem to think defined contribution (DC) Master Trusts are a “good thing.” 

Other pension trustees have, without being required to take special advice, been allowed to make bulk transfers of DC members’ benefits in occupational pension schemes without the members’ consent since April 2018. This is despite the fact that the legislative framework for Master Trusts has not, even now, been fully drafted and passed into law and tPR are only now firming up on their Code of Practice for the Authorisation and Supervision of Master Trusts. 

The new framework covers:

  • The fit and proper requirements
  • The IT systems and processes requirements
  • The continuity strategy required
  • The scheme-funder regime
  • The financial sustainability test Master Trust providers have to pass. 

While all are important, the last two are key. The provider has to give clear evidence that it is able to financially support the Master Trust and that it is only used to carry out activities directly related to the Master Trust (unless it is exempt). It also has to be able to show that it can meet the day-to-day costs of the Master Trust without increasing member costs. There are also strict penalties if a provider fails to respond to a formal statutory Section 72 request for information from tPR. The Pensions Regulator then has an ongoing supervisory role to perform with the Master Trusts. 

Despite the legislation, authorisation and tPR supervisory role not being in place, tPR does have an approved list of quality Master Trusts. But Master Trust, Smart Pensions, appears on that list despite having been fined £15,000 recently for “unacceptable” failings in 2018. 

It’s one of the UK’s fastest growing Master Trusts with over 260,000 members and 54,000 employers.

Is it already too big to fail? Are we again in the position where tPR’s approach seems somewhat lacking? Is this another example of a weak regulator failing to grasp what Parliament is trying to achieve in pensions? 

If the Master Trust system is to work it needs to go all out to win the trust and support, not just of the pension industry, but the general public whose pension savings need safeguarding.

Published: July 2018

Pensions Law Update - July 2018

Key Contact

Penny Cogher