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Govt urged to avoid repeat of Sipp failures on master trusts

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The Government is being urged to make good on its promise of “strict criteria” for master trusts, including protection for savers if providers fail.

Following last month’s Queen’s Speech, the Government unveiled a Pensions Bill that will add new  restrictions to the schemes, which provide pensions for around four million people.

The accompanying document reveals master trusts – which includes Nest, The People’s Pension and Now: Pensions – will have to meet “strict new criteria”.

The Pensions Regulator will also be given extra powers to “authorise and supervise these schemes and take action when necessary”.

The Department for Work and Pensions will not provide more detail on the contents of the Bill. A spokesman says the Government will hold industry talks “on a range of issues” that are yet to be narrowed down.

Providers and auto-enrolment experts say firms should be required to hold capital against pension assets in case of default.

Pension Playpen director Henry Tapper says both master trusts used for building up and spending down pots should have to report when reserves dip below a certain level.

Now: Pensions chief executive Morten Nilsson says when the provider’s Danish parent was researching the UK market before launching, their lawyers “could not understand how we could set up without a licence or any capital requirements”.

He says: “We’ve seen trust deeds when they can grab the money from members which is inappropriate. Providers need to have contingency plans, including setting money aside to pay for a wind-up.

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“It could be that a levy or some kind of capital requirements are added but I would be very surprised if those things are not addressed.”

Nilsson adds advisers’ roles will become easier once the standards are in place. He says in the current market comparison tools “often don’t help” differentiate between propositions.

MoretoSipps principal John Moret say the master trust industry has “some clear parallels with the Sipp market” and warns TPR should learn from the FCA’s mistakes.

He says: “From 2007 when Sipp operators were regulated for the first time it took some seven years – and three thematic reviews – for the regulator to clarify the regulatory framework for Sipp operators.

“Those seven years were ext-remely damaging and costly, if there is one lesson to be learnt by TPR it is to regulate master trusts properly as quickly as possible – but not by ignoring the industry which regrettably was what happened to Sipps.”

TPR statistics published in January show there are 3.9 million members of master trusts with an additional 106,000 in schemes restricted to particular industries.

There are currently 75 master trusts open and registered with TPR. The regulator publishes a list of schemes that have achieved the master trust assurance framework. However, the framework is voluntary and only nine schemes are on the list.

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