16 million pension pots are now better protected thanks to a tough new law which has been implemented by The Pensions Regulator (TPR).
Master trust pension schemes have had to apply for authorisation and prove they meet new standards to continue operating in the market. More than a year after the window for applications opened, the final scheme has been authorised and the process for existing schemes has ended.
Master trusts have grown significantly due to the success of automatic enrolment, which has seen 10.2 million people newly saving or saving more for retirement. 50% of employees who have been automatically enrolled into a pension are saving into a master trust.
The new safeguards were introduced on October 1 2018 and all existing schemes had to meet the demanding new standards or close. As a result of TPR implementing the new law the market has since reduced in size by nearly 60%, from 90 schemes to 37 authorised master trusts. The application for one existing scheme which applied for authorisation was withdrawn.
To gain authorisation these schemes have proved they are run by fit and proper people, have sufficient financial reserves, and robust plans and systems in place.
The reduction in the size of the market has come after several years of engagement by TPR with master trusts about the new legal standards they must meet. TPR also ran a pre-authorisation voluntary application process after which some schemes decided to leave the market, and a rigorous application process in which many schemes had to provide additional information to achieve authorisation.
Nicola Parish, Executive Director of Frontline Regulation at TPR, said: “These tough new requirements better protect the 16 million pension pots in master trust schemes, which people will rely on in their retirements.
“More than 50 schemes leaving the market shows that these laws are demanding – and rightly so. It is right that people saving for their retirement should be in a scheme which adequately protects their pension pots and which they can have confidence in.
“The 37 authorised master trust schemes will continue to be closely supervised by us to make sure they continue to operate within the law.
“We will also expect them to set an example for the rest of the pensions industry – to have their data in shape ready for the Pensions Dashboards, to be at the forefront of considering climate change in their investments and ensuring that savers are getting value from their pensions.”
All authorised master trusts will be supervised, with a higher intensity of supervision for those schemes presenting a higher risk to members, including due to their size, complexities and TPR’s previous interactions with a scheme.
As part of supervision all master trusts will have to submit documents regularly to TPR, including an annual supervisory return. TPR will run periodic scheme evaluations against the authorisation criteria, closely monitor the market and meet with schemes at a frequency dictated by their intensity of supervision.
New master trusts setting up in the market will have to be authorised by TPR before opening for business. If authorised, these new models will be intensely supervised in the first years of business to ensure they comply with the law. One application from a new master trust has been received and is being assessed.
Notes for Editors
- A master trust is a trust-based occupational pension scheme which provides money purchase benefits and is used by two or more unconnected employers.
- Master trust authorisation was brought in to implement standards in this growing market and better protect the 16 million memberships in these schemes. It puts standards in place in five areas: fit and proper persons; financial sustainability; scheme funder; systems and processes; and continuity strategy.
- A list of the 37 authorised master trust schemes is available on the TPR website. The list has been updated this morning to include FCA Pension Plan and The Salvus Master Trust.
- An update about the master trust market has been published today.
- The Pensions Regulator is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).