Master trusts will have to prove they are financially sustainable under tougher new rules published by the government today.
The Pension Schemes Bill also confirms The Pensions Regulator will be given new powers to intervene where a master trust – a multi-employer scheme designed for auto-enrolment – is at risk of failing.
The Bill sets out five criteria master trusts will have to meet: the scheme must be financially sustainable, those involved in the scheme must be fit and proper, the scheme funder must meet certain requirements to give assurance about its financial situation, the scheme must have adequate governance and administration processes, and the scheme must have an adequate “continuity strategy”.
Pensions minister Richard Harrington says: “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 also begins the process of introducing a cap on early exit charges for occupational pension scheme members wanting to access their savings.
It does not set down a precise cap at this stage, however.
TPR chief executive Lesley Titcomb says: “We are very pleased that the Pension Scheme Bill will drive up standards and give us tough new supervisory powers to authorise and de-authorise master trusts according to strict criteria, ensuring members are better protected and ultimately receive the benefits they expect.”
The Bill was announced following the Queen’s Speech in May.
The People’s Pension policy and market engagement director Darren Philp says: “Millions of people are now saving into master trusts, and as auto-enrolment continues these numbers will only continue to grow. There are a lot of schemes in the market now, and it would be unrealistic to think they will all survive. There is now likely to be a period of market consolidation – and savers need to have their assets protected while this takes place.”
He adds: “We need quality standards to be met before players can operate in the market, including proper scrutiny of the people who run schemes. Most importantly, we need to make sure that savers do not see their pension pots damaged by covering the cost of collapsing schemes – or, worst of all, lose their savings entirely.”