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Ros Altmann and TPR warn MPs over weak master trust regulation

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Pensions minister Ros Altmann and The Pensions Regulator have warned MPs members’ savings held in master trusts are exposed by a lack of regulation.

At a Work and Pensions committee hearing today, Altmann said she was pushing for a Pensions Bill to add protections for master trust members but had not yet been given a date.

She said: “Currently there is no protection in master trusts which is why I am so exercised and we know doing nothing is not an option.”

She reiterated concerns, revealed last month by Money Marketing, over what happens to savings if a scheme is forced to close, and hinted a defined contribution equivalent to the Pension Protection Fund could be established.

She said: “The issue is the assets may well be protected by the FSCS or some other mechanism but the costs of wind-up for master trusts may have to come out of the assets of the trust. The members’ pensions may be impacted.

“One route is to give TPR more powers – potentially insurance, but it would not be a Government guarantee, we don’t have a guarantee for DB schemes either. The PPF has worked quite well and we have to do something [for DC].”

Earlier in the session TPR chief executive Lesley Titcombe admitted there was a “gap” in master trust regulation that left savers exposed.

She said: “We have been concerned that we are not able to exercise as strong a regulation on this group given their importance. We introduced the master trust assurance framework with the Institute of Chartered Accountants as a way of trying to help employers choose a scheme.”

Responding to a question on whether having the framework as voluntary left a gap in terms of consumer protection, Altmann said: “In my view yes it does. We are in talks with the Government over a range of possible solutions, including making the framework mandatory.”

Committee member and South Thanet Conservative MP Craig Mackinlay says: “I do worry that in 15 years’ time we’ll be sitting here dealing with the master trust mismanagement action group if we are not careful. That’s why I’m glad we’ve got the opportunity to nip this in the bud early.”

Salvus Master Trust managing director Graham Peacock says: “It is important to note that while there are rightly concerns around a small number of master trusts, which might not be sustainable over the long term, the vast majority are run according to stringent governance and capital requirements.

“The high cost of set up and need for independent trustees means that master trusts by necessity have a strong commitment to market over the long term. We are therefore confident most of these will be able to deliver good returns to their members.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I am not sure what the issue is here.

    DB schemes need a PPF because they are generally not funded on a buy-out basis, so if the sponsor goes belly up, the members need a safety net. But in a DC master trust, the benefits are (by definition) 100% fully funded. What exactly is the risk here?

    A master trust is only a shell – a brand. All its constituent parts can be changed. So if, for example, the administrators find they cannot cope, the trustees simply change them from another lot. There will be others who will take the business. And if the guys running the master trust decide they do not want to be in that business anymore, they just sell it to someone else (ie change the trustees) or wind up the scheme and do a non-consent block transfer everyone to a different master trust.

    I appreciate that the Regulator would like to reduce the field here, because it will make his job easier (I am sure that the Regulator has been having nightmares for years about what he will be responsible for policing once the myriad of small employers start auto-enrolling). But apart from that narrow point, what is the problem?

  2. Surely it is not just about the administration of the scheme itself but also the running of the funds? There need to be some check and balances in place.

    • The investments will all be in regulated funds, managed by regulated fund managers (who can be hired and fired at will), with caps on charges and with the financial services compensation scheme standing behind it.

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