Master trusts set for consolidation under tough new approvals regime

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Experts are predicting significant master trust consolidation in the wake of tough new authorisation criteria outlined in the Pension Schemes Bill.

The bill was published by the Department for Work and Pensions last week and sets out five criteria master trusts will have to meet.

The criteria include that the scheme must be financially sustainable, that those involved in the scheme must be fit and proper, and that the scheme funder must meet certain requirements to give assurance about its financial situation.

Master trusts will also need to show that they have adequate governance and administration processes and an adequate “continuity strategy”.

Hargreaves Lansdown senior pensions analyst Nathan Long says one measure of the bill’s success will be how much consolidation occurs in the market.

According to The Pensions Regulator there are currently 81 master trusts and Long says it is possible this could shrink to as low as 10 to 15.

He explains: “From an auto-enrolment point of view, the lion’s share of money has gone into the big three – Nest, The People’s Pension and Now: Pensions – to consolidate these down we are not talking about big schemes merging with one another we are talking about a lot of smaller schemes disappearing.”

Long adds: “If we see the number of master trusts shrink to around the 10 or 15 number then the bill has done its job. It is saying we have got a number of schemes that have to be authorised with the regulator.”

The People’s Pension policy and market engagement director Darren Philp also expects to see consolidation and stresses the importance of consumer protection.

Philp says: “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.”

Delta Financial director Jarrod Ellis says the stricter rules for master trusts are “long overdue”, particularly because all employees are auto-enrolled into a workplace pension only with the option of opting out at a later stage.

Ellis explains: “Something like this where you do not have a choice, for there not to be higher standards of regulation needed to be addressed. You do not want anything that will further erode that trust that people have.”

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.