The Pensions Regulator could introduce mandatory licensing for master trusts if take-up of its voluntary “assurance” framework is poor.
TPR has today published details of a new voluntary master trust standard designed to boost auto-enrolment scheme quality.
The framework sets out how trustees should report against a range of objectives related to governance and administration.
However, during the consultation process concerns were raised about the cost of obtaining the assurance and whether it would act as a sufficient barrier to entry.
In addition, TPR says a small number of respondents urged it to go further and pursue a more supervisory approach, such as introducing a licensing regime.
This would require master trusts to apply to TPR for a licence and demonstrate a number of specific standards before being granted permission to operate in the UK.
In response, the regulator says licensing could be effective in managing new market entrants but would impose extra costs on schemes that would be passed on to members.
It adds: “In a deregulatory environment and period of austerity measures, we consider that voluntary assurance is a proportionate response in the context of the regulator’s overall risk-based approach to regulating DC schemes.
“Assurance is likely to be less costly than some of the alternative approaches proposed by respondents, such as licensing.
“The regulator expects that there will be a small number of master trusts and believes that its existing powers and voluntary assurance form a solid basis for regulating this sector.
“We will monitor how the market responds to the introduction of voluntary assurance and will consider moving to a more rigorous framework if take-up is poor.”
Now: Pensions chief executive Morten Nilsson says: “It’s entirely right for TPR to shine a light on master trusts because they have a big and potentially beneficial role to play in the auto enrolment market.
“But having a voluntary assurance framework will increase the financial and administrative burden on reputable players while those who it is intended to target will simply turn a blind eye. It also does nothing to address barriers to entry which are far too low.
“While I am completely in favour of raising standards in master trusts, a voluntary assurance framework is no substitute for proper regulation.
“Decisive action needs to be taken now otherwise there is a very real risk that employers will find themselves in a sub-standard master trust that will close its doors in a few years’ time when it fails to achieve sufficient scale to survive in this market.”