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Altmann: Savers face ‘unacceptable’ risk of master trust wind-up charges

Ros Altmann

Pensions minister Ros Altmann has hit out at automatic enrolment providers that levy a charge on members in the event of failure.

In recent weeks the Department for Work and Pensions and The Pensions Regulator have raised concerns over the low barriers to entry to the master trust market.

Unlike schemes run by insurers, there are no capital requirements for master trusts. Some providers have terms and conditions in place that mean money can be clawed back  directly from members’ pension pots if the scheme is forced to wind up.

However, speaking to Money Marketing, Altmann says: “Whether or not it’s in the terms and conditions there is clearly a risk if schemes wind up.

“And it’s not a risk that I feel is acc-eptable to have in an auto-enrolment scheme. The DWP is not approving these schemes and TPR doesn’t have the power to stop such schemes.

“Obviously there are big master trusts that are secure but if you go with a smaller, newer one you need to very carefully check out what protection there is – if any – on wind-up.

“I do not want to see members and employers losing their pensions on wind-up. I spent too many years of my life battling against the impact of that and I cannot accept the current situation. Doing nothing is not an option.”

Winding-up costs are excluded from the 0.75 per cent charge cap on auto-enrolment default funds.

Master trust Now: Pensions chief executive Morten Nilsson confirms its members are protected in the event of a provider failure.

Cervello Financial Planning independent financial planner Richard Earl says: “The financial strength and sustainability of any master trust scheme is of the utmost importance to us.

“If the scheme failed, not only would there be the potential loss of valuable pension funds built up by the members but their employer, whom we have advised, would lay the blame for recommending that scheme at our door and this might culminate not only in a complaint  but also in the breakdown of a relationship with a valuable corporate client.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Well done Baroness. Quite right that there should be solvency, conduct and capability protections, especially in the AE world.

    Keep up the good work

  2. “Low barriers to entry” are to be celebrated. They mean that it becomes impossible for poorly performing providers to mis-manage member funds and live in the dark ages of client service.

    In the 20 years I have worked in financial services, on the private/individual client side we have gone from it taking 6 weeks for the Claims Department to issue a surrender quotation (and longer if anyone wanted an explanation of why values were so low) to one of obtaining 24/7 valuations on line. This has been the direct result of competition and innovation, not of regulation, as the clapped out old Life Companies came under competition from new, innovative providers.

    In the Group Pensions market, we are only now seeing this. Recent stories abound of examples where Life Companies have sat on premiums for months and months without allocating them to members. Thanks to Master Trusts, these providers are now losing ground. And where a Master Trust puts a foot wrong – like NOW Pensions and their random charges – we see business moving away.

    Capital requirements will assist nobody. As it is, those calling for them have no coherent idea as to whom they would apply. An occupational pension scheme has no legal personality. There is no such thing as a ‘provider’ of such a scheme. There are participating employers. For schemes with multiple-employers, there are trustees subject to the independence requirements of the Charges & Governance regime, and there is a statutory bar on any such scheme (or the Trustees thereof) being tied to any particular administrator or investment manager (and of course, any investment manager or adviser is already FCA regulated with its own capital requirements).

    The main impact of onerous capital requirements in the SIPP market has been to destabilise SIPP providers, reduce the availability and willingness of SIPP operators to pickup the resulting ‘distressed’ books, and vastly reduce the number of players. We do not need artificially driven crises like this in the Group Pensions market: instead we need the competition and innovation that serves clients so much better long-term than the dead-hand of corporatism and regulation.

  3. To counteract Ros Altmann’s criticism, a master trust could build up a contingency fund within the trust to meet winding up costs. Perhaps use the SIPP cap ad regime as a guide for how much to build up.

  4. when Baroness Altman controls pricing of the SIPP market then and only then does it make any sense to talk cap ad. The SIPP providers got into a mess by not taking responsibility for what was in the SIPP. A SIPP is Member Directed although now with many suitability rules imposed by the FCA. The reckless approach taken by many SIPP providers in effect being a conduit to Unregulated Collective Investments Schemes (UCIS). This in effect enabled completely inappropriate investments to be sold within a SIPP. Contrast that to TRUSTEE directed Mastertrusts. I will talk to Wragge Lawrence Graham on Monday and ask them if they would approve an investment in a Holiday resort in the Caribbean….or do I already know what the answer will and should be….an emphatic NO. So the Cap Ad in SIPP system is not needed in the Mastertrust market. I am getting tired of senior figures in the market kicking mastertrusts. yes there are some small ones that will fail. I accept that but without Mastertrusts AE will FAIL. Nest Now People, Salvus and many more….all mastertrusts and they all follow the winding up requirements as laid down by the Pensions Regulator!

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