Existing master trust schemes that were already in operation before 1 October 2018 have until 31 March 2019 to apply to the Pensions Regulator (“TPR”) for authorisation. If authorisation is not obtained, the master trust cannot operate and will be required to wind up and transfer any members it may have.
What type of schemes are “master trusts”?
A “master trust scheme” is a multi-employer occupational scheme where each employer has its own division within the master arrangement. One trustee board has decision making power for each division in respect of things such as investment and service providers under a trust wide governance structure. This type of structure can offer employers reduced pension administration costs and increased governance.
Section 1 of the Pension Schemes Act 2017 defines a master trust as an occupational pension scheme which:
- provides money purchase benefits (whether alone or in conjunction with other benefits);
- is used, or intended to be used, by two or more employers;
- is not used, or intended to be used, only by employers which are connected with each other; and
- is not a relevant public service pension scheme.
Importantly, all of the conditions above need to be satisfied in order for a scheme to be a master trust.
What is the deadline for applying for authorisation?
As mentioned above, existing master trust schemes have a period of six months from 1 October 2018 to apply for authorisation (i.e. until 31 March 2019). Trustees may be able to obtain an extension of up to six weeks to the six-month period for applying for authorisation if they can satisfy TPR they have “good reason for needing an extension”. In its monthly update on master trust authorisation, TPR revealed that, so far, it has only granted one extension.
What does applying for authorisation involve?
If TPR receives an application for authorisation, it will decide whether the scheme in question satisfies the five authorisation criteria. These are as follows:
- Those involved in running the scheme are “fit and proper persons”.
- The scheme is financially sustainable.
- The scheme funder meets certain requirements.
- The scheme’s systems and processes are sufficient to ensure that it is run effectively.
- The scheme has an adequate continuity strategy in place.
If TPR is satisfied that a scheme meets the authorisation criteria, it must grant authorisation, notify the applicant and add the scheme to its list of authorised master trust schemes. Once authorised, schemes are subject to TPR’s ongoing supervision.
In its report on the current master trust market, dated March 2019, TPR confirms that it has identified 90 master trusts in the market and, as at 28 February 2019, 13 applications had been submitted for authorisation. Only one scheme has already been authorised. Of the remaining schemes, 8 have already exited the market, 31 have indicated an intention to exit and the remaining 38 are expected to either apply for authorisation or trigger their exit from the market by 31 March 2019.