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UK Pensions Regulator publishes 'voluntary' framework for DC master trusts

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The Pensions Regulator (TPR) has published the final version of the Master Trust Assurance Framework, which will allow schemes to demonstrate schemes are of an expected high standard.

The framework, developed by the Institute of Chartered Accountants for England and Wales (ICAEW), will support trustees in master trusts, as well as auditors of schemes, to ensure standards are met, the regulator said.

It includes detailed expectations from trustees of schemes, with specific focus on risk elements, costs and value for money, protection of assets, and managing conflicts of interest.

In managing conflicts, trustees must operate on a deed that allows them the power to change service providers including administrators and investment managers.

A number of master trusts in the UK are owned and operated by asset managers and administrators.

While they remain commercially independent, these parent companies often perform administration and investment management on behalf of the scheme.

The framework also compels trustees to ensure it regularly assess value for money received by the schemes’ outsourced components, as well as proving the scheme offers the same value to members.

Should reviews find failings in either of these cases, schemes will need to take action to ensure they maintains quality assurance.

Much of the framework is based on the regulator’s previous work on enhancing quality standards across defined contribution (DC) schemes.

It had previously set out six principles for quality DC schemes to follow, in addition to 31 quality features schemes should demonstrate to meet these principles.

The regulator will also maintain a public register of all master trusts in the UK that meet the new assurance framework.

Executive director for DC at TPR, Andrew Warwick-Thompson, said it was important schemes in the master trust space embraced these high standards of practice.

“Assurance acts as a check against schemes being set up by people who lack the competence or financial resources to take care of people’s pension savings adequately,” he said.

“Whilst voluntary, we expect master trusts to obtain this independent assurance.”

However, Now Pensions, a UK master trust owned by Danish pensions provider ATP, criticised the framework for not raising the “far too low” barriers to entry in the market.

Chief executive Morten Nilsson said reputable providers would be burdened, while those it was intended to target would wilfully ignore it.

“A voluntary assurance framework is no substitute for proper regulation,” he said.

“Decisive action needs to be taken now. Otherwise, there is a very real risk employers will find themselves in a sub-standard master trust that will close its doors in a few years’ time when it fails to achieve sufficient scale to survive in this market.”

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