The government is to put together a Pensions Bill which will tackle protections in master trusts and cap exit charges for savers, it announced in the Queen’s Speech.
Supporting documentation for the government’s upcoming legislative programme showed it plans to enforce strict new criteria for master trusts to have to demonstrate before schemes can enter the market and accept funds.
It also plans to give the workplace and master trust regulator, The Pensions Regulator, greater powers to authorise and supervise these schemes and take action when necessary.
Furthermore, it will legislate to cap early exit fees charged by trust-based occupational pension schemes, creating a system that enables consumers to access pension freedom without unreasonable barriers, it said.
The government said it wants to “provide essential protections” for people in master trusts, as well as remove barriers for consumers who want to access their pension savings flexibly.
The Bill will protect automatically enrolled savers, of which there are about six million currently in the market.
It will also ensure excessive charges do not prevent occupational scheme members from taking advantage of pension freedoms, the government said.
“This helps deliver the manifesto pledge to give you the freedom to invest and spend your pension however you like,” it added.
The industry has previously voiced concern about the regulatory frailty around master rusts and have broadly welcomed the government’s announcement but said there is more to be done.
“We believe all firms operating on a commercial basis should be subject to both prudential and conduct oversight,” said Scottish Widows head of industry development Peter Glancy. “New entrants must be subject to assessment before gaining authorisation to become a custodian of customer assets and existing operators should be given a sensible period of time to demonstrate the necessary level of competency.”
Aviva corporate benefits director Colin Williams said: “The time has come for legislation to control the influx of master trusts. There needs to be more control over who can set them up and the level of financial backing needed before they can start to accept members.”
Hargreaves Lansdown head of retirement policy Tom McPhail agreed: “Unfortunately, whilst the vast majority of schemes are very well run, isolated pockets of risk exist with small schemes being run by organisations with limited resources and over which the regulator has only limited influence. These schemes could not only cost members money, the failure of even one could taint the whole pensions industry by association.”
But law firm Pinsent Masons pensions expert Tom Barton said: “There are already very large numbers of master trusts up and running and taking in contributions. This looks like a fairly belated attempt to create a barrier to entry – unless it is to apply to existing schemes too.”
Irwin Mitchell pensions partner Penny Cogher added: “The concept of the professional trustee, held out as a safeguard for the master trusts, is completely unregulated and I believe it is an area where the government should also legislate swiftly to avoid future pension scandals.”
LV= managing director of retirement solutions John Perks supported the capping of exit fees: “The pension freedoms are designed to give people much more flexibility over what to do with their savings so we fully support the removal of exit fees and any other barriers that prevent people from accessing their money as they want, and with the provider they want. It’s vital that people are able to shop around without penalty at retirement as we know that people who do so are much more likely to get a better deal.”
Fidelity International head of pensions Richard Parkin said: “There is a stark contrast between the significant capital requirements and strict regulation of insurance companies and fund managers providing pensions when compared with the light touch regime applied to master trusts.
“While we do not believe it is necessary to equalise requirements between the two types of scheme, more needs to be done to ensure those operating master trusts have the financial capacity to meet their obligations and that The Pensions Regulator has sufficient powers to direct and sanction those that don’t meet the standards.”
He added: “Master trusts are a key part of the pensions landscape and are becoming increasingly popular with employers who still want to participate in the governance of the pension scheme they offer without taking on the significant overheads of full trusteeship. We have to be careful that, in strengthening the regulatory framework, we don’t frustrate these employers further or create significant additional costs for well-capitalised operators.”
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