Schemes risk breaking the law and being forced to wind up as The Pensions Regulator (TPR) warns some may be master trusts but do not know so.
The warning comes as the watchdog urged all defined contribution (DC) schemes to check whether they meet the legal definition and launched a step-by-step guide to aid this process.
While TPR said it believes it has contacted all schemes it believes meet the definition, “trustees will always know their structure best” and should seek advice as it is their responsibility to comply with the law.
Under the law, master trusts are schemes which provide money purchase benefits; are used or intended to be used by more than one employer; are not used solely by firms connected with each other; and is not a relevant public service pension scheme. They can also be a group of schemes where all are under “common control”.
Any scheme that met this definition before 1 October must apply for authorisation by the end of March next year.
Furthermore, in August, RP’s sister publication Professional Pensions revealed that DC schemes could unwittingly become master trusts if they make certain changes to their benefit structures. Such changes would mean they would immediately fall under the master trust legislation, breaching the law if they do not have authorisation.
TPR executive director for frontline regulation Nicola Parish pointed schemes to the eight-step guide.
“It is the law that, from April 2019, any master trust schemes operating without authorisation will have to close and transfer members to another master trust,” she said. “It’s really important that scheme trustees use our guide and seek additional advice if they need to, or they could find themselves being forced to wind up in four months’ time.”
She warned that master trusts under the definition have just one chance to apply for authorisation, with no appeal process available.
“We have been working with schemes we think meet the definition of a master trust, but trustees will always know their structure best, and it is their responsibility to check whether their scheme is a master trust.”
Just one scheme – Willis Towers Watson’s LifeSight – has applied for authorisation under the regime so far, while 35 of the remaining 89 schemes have exited or triggered their exit from the market.