Peter Glancy, Head of Industry Development at Scottish Widows, said: “Our concerns are not in relation to the concept itself, but in relation to the lack of an appropriate regulatory and legal framework to protect savers whose money is handed over to operators by their employers. Trust Law is an appropriate basis of governance when a pension scheme exists solely for the benefit of its members. Traditional Occupational Pension Schemes operate in this way, as does the Government Scheme NEST and The People’s Pension.
“However, the vast majority of Master Trusts have been set up by operators who have a profit motive. Traditionally financial services firms operating with a profit motive have been supervised by the FCA who have a remit to ensure that the balance between commercial returns and customer returns are fair, conducts due diligence on senior management and ensures that the market operates in the best interests of customers. Master Trusts are not supervised by the FCA and this regulatory gap means that many people will be exposed.
“Traditional pension providers are also supervised by the Prudential Regulatory Authority (PRA) which sits within the Bank of England. The PRA ensure that firms have appropriate levels of capital and operational infrastructure to operate a sustainable business in the long term. Master Trusts are not subject to this scrutiny and supervision and there is a real risk that many Master Trusts will not be sustainable in the long term. The question then arises as to who picks up the costs of sorting things out if the master trust you are invested in fails. As contract law doesn’t apply here it could become very complicated and in the absence of a robust regulatory framework, savers could end up having some or all of their pension pot allocated to covering the administrative costs which arise.
“Employers looking to move to a multi-employer vehicle to reduce costs can safely choose a Group Personal Pension, overseen by the FCA, the PRA and now Independent Governance
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