TPR gets tough master trust powers in Pensions Bill

The Pensions Regulator (TPR) will have “game changing” powers to regulate master trusts under a Pensions Schemes Bill, published today.

After the watchdog has long warned about the low barriers to entry for master trusts, it will now have the power to authorise and de-authorise them for the first time.

The first reading of the bill took place yesterday (19 October), which marks the start of its journey through the House of Lords.

Supervision and authorisation will involve examining all aspects of master trust operations and governance. TPR said authorised trusts will be suitable for any employer that wishes to use them, and they are the “lynchpin” of the development of a sustainable defined contribution (DC) pension market.

Executive director for regulatory policy Andrew Warwick-Thompson (pictured) welcomed the measures: “We welcome the Pension Schemes Bill as a game changer. For the first time, master trusts will have to be authorised by us before they can open for business.

“To remain in the market they will also have to demonstrate to us on an ongoing basis that they continue to meet the strict authorisation criteria, including provisions to ensure member funds are protected in the event of a scheme wind up.”

He anticipates that authorised master trusts will also offer employers who sponsor their own occupational DC schemes an alternative to continuing to run their own schemes.

“There are currently tens of thousands of DC schemes, many of which are struggling to meet adequate standards of governance and administration, and are unlikely to be able to provide value for money for their members. The consolidation of such schemes in to authorised master trusts is likely to be in the best long-term interests of both their members and sponsors.”

To gain authorisation, a master trust will need to demonstrate it meets the standards required by the authorisation criteria. These set out standards for those running schemes, the scheme’s financial sustainability, the systems and processes needed for good governance and how members’ benefits will be protected if a master trust closes and looks to wind up.

The pensions minister, Richard Harrington said: “We are helping to create a culture of saving across the country and have delivered much needed change to our pension system to make saving easier, fairer and safer for all.

“We want to make sure that people saving into master trusts enjoy the same protection as everyone else, which is why we are levelling-up that protection, to give these savers more confidence in their pension schemes.”

The bill was welcomed by Now Pensions chief executive officer Morten Nilsson, who said he was shocked how easy it was to set up a master trust, which only involved sending a form to HMRC and TPR. Although he called TPR’s new powers “long overdue”, he said there are things missing from the bill.

For example, while it tackles the issue of providers having sufficient capital to some extent, the lack of de minimis capital requirements for entering the market is a “grave oversight”.

Providers should not be able to set up a master trust and accept pension contributions from savers if they have no solid financial foundations, said Nilsson.

It is also disappointing the master trust assurance framework will not be made compulsory as part of the licencing regime, he added.

“The voluntary assurance framework was introduced as a quality standard to enable trustees of master trusts to demonstrate high standards of scheme governance and administration and making it compulsory and building on this existing framework seemed logical.”

A second Lords’ reading on all aspects of the Pensions Bill will take place on 1 November.

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