The UK Pensions Regulator (TPR) has raised the possibility of a new licensing regime for master trusts, as it believes mandating the use of the master trust assurance framework will fail to address the “key problem” facing the market.

Andrew Warwick-Thompson, executive director for regulatory policy at TPR, said the idea of making the voluntary framework mandatory would not go far enough in regulating the market, or address the regulator’s key concerns about low barriers of entry into the market.

He stressed that any regulatory change was a matter for Parliament to decide, noting that calls for TPR to make the framework mandatory were falling on deaf ears because it did not have the requisite powers to introduce such a change.

Discussing the options for the stricter regulation of master trusts, Warwick-Thompson said at an event organised by the Tax-incentivised Savings Association: “The options will possibly be some sort of licensing, possibly some sort of enhanced supervision, possibly some sort of capital adequacy.

“And one of the things I’m particularly concerned about – because of this impact on members if these schemes go down – is [the introduction of] some sort of living will.”

Both TPR and the UK government have stepped up their rhetoric around master trust regulation, with Warwick-Thompson telling IPE in January that the regulator needed to “think very hard about how we prevent more master trusts coming into the market”.

His comments came shortly before Harriett Baldwin, economic secretary to the Treasury, said new regulation of the market would be introduced “as soon as practically possible”. 

Warwick-Thompson told the TISA event that the absence of thorough checks of business plans for master trust providers, or examinations of their capitalisation, were “anomalous” when compared with the scrutiny other pension product providers were placed under prior to launch.

Market consolidation

Nigel Waterson, chair of trustees at Now Pensions, which previously backed the idea of licensing providers eligible for auto-enrolment contributions, echoed Warwick-Thompson’s remarks by saying the master trust market was “ludicrously active”.

Waterson, shadow pensions minister at the time the launch of auto-enrolment and the National Employment Savings Trust (NEST) was legislated for, said the feared market failure that led to the creation of NEST had not occurred.

Instead, the large number of master trusts – more than 100 are known to the regulator, of which 73 are active – will need to come down, with Waterson suggesting the regulator act as a “marriage broker” in the coming years.

Waterson also seemed to accept the need for capital adequacy requirements but insisted that, if such steps were taken, then NEST could not be exempt from the regulation.