Sections

UK government sets out rules for DC master trusts

Related Categories

Defined contribution (DC) master trusts could have to pay up to £67,000 (€76,000) to become authorised under a new UK regulatory framework set out by the government this week.

The Department for Work and Pensions (DWP) yesterday published its draft regulations for the burgeoning master trust sector, as part of the Pension Schemes Act 2017. The new rules would grant the Pensions Regulator (TPR) the authority to authorise and de-authorise master trusts.

Master trusts have grown in popularity since the introduction of auto-enrolment. The requirement for all employers of all sizes to provide a pension scheme has meant thousands of small businesses outsourcing their pension provision to such trusts.

The rules for master trusts have been designed to ensure the individuals operating such schemes are “fit and proper” and that the schemes themselves are financially sustainable, effectively run and with an “adequate continuity strategy”.

The rules would apply to major master trusts such as The People’s Pension, the National Employment Savings Trust, TPT Retirement Solutions and others run by several financial services giants including Legal & General and Willis Towers Watson.

New entrants after the act comes into force in October 2018 would be subject to a one-off authorisation fee of up to £24,000, payable to TPR, the consultation document said.

Department for Work and Pensions

The proposed authorisation fee for existing schemes could be more than twice this figure: the DWP has proposed an upper limit of £67,000.

The exact maximums are yet to be agreed, the DWP said.

“Two fees have been chosen because it is expected that, on average, the work involved in processing an existing master trust application will be substantially higher than processing a new application, requiring a higher fee,” the consultation stated.

“The reasoning for this includes, for example, the regulator’s intention to have higher engagement with existing master trust schemes, reflecting market risk, known issues and the greater likelihood of additional information being required during the processing window.”

Strategists and trustees working on master trusts will be subject to suitability tests to judge individuals’ knowledge, understanding and experience.

Scheme providers will also be required to have sufficient resources to cover the costs of setting up and running a master trust and to resolve events that “could have a significant impact on a master trust scheme’s ability to operate”.

The consultation is open until 12 January 2018. The full document is available here.

In July NOW: Pensions, one of the largest master trust providers in the UK, withdrew itself from TPR’s “assurance list” of auto-enrolment providers because of problems relating to processing contributions for some of its clients. TPR had been reviewing the provider’s inclusion on the list due to concerns about the governance and administration of the scheme.

TPR said in a statement that it had “long called for much stricter regulatory controls” for master trusts as there were “very low” barriers to entry for new providers.

Nicola Parish, executive director for frontline supervision at TPR, said the regulator would consult on a code of practice early in 2018 to outline how authorisation would work.

Guy Opperman MP

Guy Opperman speaks at the PLSA conference in October 2017

Guy Opperman, government minister for pensions and financial inclusion, wrote in his introduction to the consultation: “Anyone who has heard me speak will know that I am passionate about automatic enrolment and that, in my view, auto enrolment must work for savers and employers alike. To support this, there must be trust and confidence in the pensions system.

“The authorisation and supervisory regime introduced by the Pension Schemes Act 2017 will ensure that the over 7m people saving for their pensions through master trust schemes will have equivalent protection to members of other pension schemes.”

What the industry said

Mark Baker, pensions legal director at law firm Pinsent Masons, said it was “essential” the DWP got the regulation of master trusts correct, but highlighted that TPR had not so far dealt with a “detailed supervisory regime”.

“From a political perspective, it would be an own goal if a lower bar for review were set for new entrants”

Darren Philp, The People’s Pension

“It’s much more like the [Financial Conduct Authority] style of regulation, hard-hitting when something goes wrong,” Baker said. “It will take a lot of work for the Pensions Regulator to get to know the providers and trusts it’s supervising.”

Tim Gosling, policy lead for DC at the Pensions and Lifetime Savings Association, said: “We and our master trust members have been working closely with DWP over the last year on the development of the regulations. Over the coming weeks we will work further with the department to help ensure that the final rules are workable and proportionate.”

Darren Philp, director of policy at The People’s Pension, raised concerns about the cost of authorisation.

“The regulation states that the principle for charging is cost-recovery,” he said. “If this is the case then why do we need two different caps, since there is nothing to stop the regulator charging a new entrant the actual costs of authorisation?

“We would argue that the same rigour and assessment needs to be in place on existing and new master trusts. We might also expect initial supervisory costs of new master trusts to be higher as they should be required to demonstrate to the regulator that they are implementing systems that actually work.

“From a political perspective, it would be an own goal if a lower bar for review were set for new entrants, as the political impetus behind the Pension Schemes Act was driven by the entrance of low-quality, under-capitalised and potentially fraudulent schemes.”

Related images

  • Department for Work and Pensions

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2383

    Asset class: Residential Property.
    Asset region: Ireland.
    Size: EUR 10m.
    Closing date: 2017-12-18.

  • QN-2384

    Asset class: Equities Switzerland (Large Caps).
    Asset region: Switzerland.
    Size: CHF 550 – 600 mn.
    Closing date: 2017-12-15.

  • QN-2385

    Asset class: Liability Driven Investment.
    Asset region: Europe.
    Size: Size: EUR 1 Billion, Liability size: EUR 3 Billion.
    Closing date: 2018-01-08.

  • QN-2386

    Asset class: Fixed income.
    Asset region: Global developed markets.
    Size: CHF 500 -1000m.
    Closing date: 2018-01-15.

  • DS-2392

    Closing date: 2017-12-21.

  • QN-2393

    Asset class: All/Large Cap Equities.
    Asset region: Europe.
    Size: EUR 200m.
    Closing date: 2017-12-21.

  • QN-2394

    Asset class: Real Estate Industrial.
    Asset region: Europe.
    Size: EUR 10m.
    Closing date: 2018-01-04.

Begin Your Search Here