Kate Smith, Head of Pensions at Aegon: “In future all master trusts will be authorised by the Pension Regulator and have to submit a business plan proving financial sustainability including evidence they have access to funds to cover trigger events such as wind-up costs. The new regulations will have the dual benefit of driving up standards and offering greater protection to members.
“We’re pleased the government has listened to the pension industry and avoided duplication and over-onerous rules by recognising that master trusts run by PRA regulated providers already meet high capital adequacy standards.
“Master trusts come in all shapes and sizes. Attracted by automatic-enrolment, and with historically low regulatory entry barriers, the UK has seen a proliferation of master trusts since 2012. In future those without access to additional funds are unlikely to survive. The regulations will increase the cost base of master trusts leading to greater consolidation over the next couple of years. All new master trusts, regardless of their size, will have to pay the Pensions Regulator a flat fee, of not more than £24,000, as part of the authorisation process. The Pensions Regulator expects reviewing existing master trusts to involve substantially more work and their fee could be up to £67,000, almost three times as high. Only the financially stronger schemes are likely to want to continue to participate in this market while weaker master trusts will look to find a buyer.”
John Wilson, Head of Technical, JLT Employee Benefits, comments: “Given the increasing popularity of master trusts, draft regulations are important to ensure that a proper authorisation and supervision regime is put in place. Master trusts are not necessarily superior in all circumstances and the key to making the right choice for a particular organisation is to start by defining what is important for both employees and employer, and prioritise needs accordingly.
“Master trusts will remain a prominent feature of the DC pensions landscape and are well placed to take lead when it comes to innovation in areas such as decumulation. Such innovation would be welcome, as the decumulation market is still evolving in response to the introduction of the pension freedoms.”
Tim Gosling, Policy Lead: Defined Contribution, PLSA, said: “Master trusts have been essential to the success of Automatic Enrolment. Currently, over 8 million people are saving for retirement in these schemes. DWP has built on the Pension Schemes Act 2017 with a regulatory package that will protect consumers while taking account of the diversity of the market. We and our Master Trust members have been working closely with DWP over the last year on the development of the regulations. Over the coming weeks we will work further with the Department to help ensure that the final rules are workable and proportionate.”
Darren Philp, director of policy at The People’s Pension, said: “Today’s draft regulations are an important milestone in achieving proper regulation and authorisation of master trusts to ensure members are appropriately protected. We welcome the consultative approach being taken by the DWP and TPR, and look forward to seeing how the regulator will implement some of the detail in their code of practice.
“Early sight of a draft code will be important for providers, as the new regime comes into effect from October next year and the industry has been invited to let the regulator see early versions of their applications for authorisation.
“One point of detail in the draft regulations that needs more thought are the different fixed caps for the cost of an application, depending on whether the applicant is an established master trust or a new one. The regulation states that the principle for charging is cost-recovery. If this is the case then why do we need two different caps, since there is nothing to stop the regulator charging a new entrant the actual costs of authorisation?
“We would argue that the same rigour and assessment needs to be in place on existing and new master trusts. We might also expect initial supervisory costs of new master trusts to be higher as they should be required to demonstrate to the regulator that they are implementing systems that actually work. From a political perspective, it would be an own goal if a lower bar for review were set for new entrants, as the political impetus behind the Pension Schemes Act was driven by the entrance of low quality, under-capitalised and potentially fraudulent schemes.”
|
