Master Trusts are a popular way for employers to meet their auto-enrolment obligations. They are basically pension schemes providing money purchase benefits to non-associated employers.
The process for signing up is usually simple with standardised documents for new joiners, although they can need a brief legal check and explanation given that they are trust deeds so you should know what you’re agreeing to. Master Trusts follow a ‘pensions as a service’ model, like a group personal pension, but are regulated as an occupational pension scheme rather than a personal pension as they are trust based.
Popularity breeds competition which has led to fragmentation in the market and some concern around certain smaller providers and their financial stability in the event that something goes wrong. The Government legislated in the Pension Schemes Act 2017 to clamp down on the ‘wild west’ elements of the market, and put some mandatory requirements for those wishing to set up or run a master trust – enforced by the Pensions Regulator with its auto-enrolment hat on to address this point.
The legislation puts in place an authorisation and supervision structure for Master Trusts to make sure that they are hitting the right notes on governance, price and sustainability. If you’re not authorised under the new system you will need to shut up shop – meaning employers using that master trust will need to move their business.
The key issue here for providers is the cost of authorisation and compliance, with implication being that if you want to run one of these things you will need to get big to afford the associated costs and ongoing compliance requirements. End result? Better schemes for members.
As with all things pensions the details of how this will be done will be in Pension Regulator codes and guidance. The first tranche of this, a code of practice dealing with how the Regulator will go about authorising and supervising master trusts, is out for consultation now. Consultation runs from 27 March 2018 until 8 May 2018 and is available here:
For the record we think the Regulator’s on the right track with its proposals. Our main concerns are just that the Master Trust regime includes a lot of new-ish terminology which will need time to settle in, and that over zealous implementation doesn’t drive out good market participants through excess compliance costs. However the principles seem good and the consultation will give industry, employers and of course members the opportunity to understand who’s who in the world of master trusts.
For employers if you’re using a Master Trust for your auto-enrolment solution it’ll be worth checking what your provider is doing on compliance with the new regime, and potentially running a beauty parade to make sure your solution is still working for your employees. That’s good practice, given that your decision on provider feeds through to what your employees will get when they retire.
Master Trusts are not the only fruit, but they can hit the spot.