The Pensions Regulator reversed its decision not to publish a list of approved master trusts just as two providers adjusted their offerings, Natasha Browne discovers
- TPR has published a list of approved master trusts for auto-enrolment
- The list comes after two brands adapted their offerings, amid concerns about the viability of smaller schemes
- Experts say the master trust assurance framework should be mandatory
The Pensions Regulator (TPR) originally unveiled plans to publish a list of master trust providers that were suitable for small employers last November. But it later dropped the idea over concerns that it would be too onerous to carryout ongoing assessment.
Last week however, the regulator backtracked on this decision and published a list of providers that were willing to take on small employers and met the voluntary master trust assurance framework (MAF).
There are currently just two providers on the list: Now Pensions and The People's Pension. SEI's master trust has also qualified for the MAF but is not included.
The timing of the list is noteworthy.
Earlier this month, The Telegraph reported that HM Revenue and Customs (HMRC) had ordered around 40 employers that had contracted Source Pensions to set up their auto-enrolment (AE) arrangements to stop payments and move members' accrued savings into other schemes within three months.
In a statement given to PP, HMRC said it had acted because the schemes were not properly recognised as the administrator had failed to complete the tax office's pension scheme registration process correctly. HMRC said it would not seek to recover the tax relief that was applied incorrectly because the employers and employees were "trying to comply with their legal obligations".
Source Pensions ran a series of occupational schemes but is now looking to set up its own master trust. It did not respond to PP's request for comment on The Telegraph's discovery.
The firm's Irish operation has also had challenges this year.
Source Pensions Administration and Trustee Company was removed as trustee of 180 schemes and barred from acting as a trustee for five years in February. The Irish pensions regulator had launched an investigation after a whistle blower alerted it to a £500,000 loan from client pension monies to the firm.
A separate workplace scheme that appears to have been pulled from the shelves is Friendly Pensions Mastertrust.
When contacted by PP, its former managing director David Austin said it was a start-up which had failed to get off the ground. But a new company - GenLife Ltd, which has a number of directors in common with Friendly Pensions Ltd - says it has taken over the master trust.
A director of Genlife said this was a rebranding exercise but he was prevented from discussing the changes "under official regulations" and asked for all mention of Friendly Pensions to be removed from PP's definitive list of master trust providers.
Pension Playpen founder Henry Tapper (pictured) is concerned about the sustainability of some master trusts and believes at least two names on PP's list are unlikely to be around by the end of the year. He welcomed TPR's decision to publish the list of MAF-approved schemes.
He says: "We offer a durability rating on all master trusts we research at Pension Playpen and we've researched the majority of those master trusts [on the PP list]. I would say the majority of the master trusts which we haven't included on our Pensions Playpen service have failed because we can see no sustainable business model behind them.
"It's not just that they aren't particularly good - some of them aren't particularly good but have a sustainable business model. But it's the ones that have no sustainable business model and we can't actually see any point to them that worry us."
Tapper points out that cost is a big reason why small providers are likely to fail.
He says: "The nature of the type of schemes which we're having to take on post-2016 don't offer a particularly attractive demographic for master trusts. And it's going to be much more expensive to operate master trusts if the regulator turns up the heat as it looks like it is doing."
An obligatory framework
Although the MAF will help demonstrate which providers have a high standard of governance and accountability, experts are divided on whether it should be mandatory.
The People's Pension director of policy and market engagement Darren Philp estimates the cost of the MAF process to be between £1oo,000 and £120,000. He thinks the framework will have to become obligatory to succeed.
Philp says: "So far there has only been a handful of schemes that have actually gone for the voluntary assurance. It hasn't really had the market impact that the regulator and indeed the government was probably hoping for.
"I think if more master trusts don't sign up to this and embrace what the regulator is trying to do in terms of governance, accountability and standards, then over time I think they'll have to make it compulsory."
Muse Advisory client director Ian McQuade has a similar view. He says: "The expansion in the number of master trusts over recent years has been a concern for a number of reasons, especially given TPR's focus on improving the levels of governance and member outcomes in DC [defined contribution] schemes.
"Anyone can establish a master trust as long as they meet the fit and proper person test. Clearly, a number of the master trusts have been established by large, well run, well governed and appropriately capitalised organisations. But some do not meet one or more of these criteria.
"The master trust assurance framework is a welcome addition, but while it continues to be voluntary, it will not drive the step change that is required. The announcement by the regulator of those arrangements that have met the assurance framework could be the catalyst required."
Duncan Buchanan, president of the Society of Pension Professionals (SSP) and a partner at Hogan Lovells, is against making the framework completely mandatory.
He says: "Master trust has such a wide definition that there are some very proper and legitimate schemes that are set up for multiple employers that are not connected but where they are not appealing to the auto-enrolment market.
"There might be some sense in requiring or encouraging master trusts that are targeted at the low end auto-enrolment market to go through the master trust assurance framework. And I suspect that the regulator's announcement is a tilt in that direction."
Philp advises employers searching for appropriate schemes to look for durability and track-record. He says: "If you're investing people's money, if you're setting something up as an auto-enrolment scheme, you don't want it to be here today, gone tomorrow. You want it to have some durability.
"If it goes wrong, then they'll have to do it all again. And that's time, cost, and effort, on behalf of the employer."
In any case, TPR is actively urging small employers preparing for AE to choose "high quality" large schemes.
A spokesman says: "If an employer is concerned about compliance with their duties as a result of events affecting a third party, they should contact the regulator and we will, where appropriate, work with them to get them back on track so that members receive the pension contributions they are entitled to.
"Employers choosing a scheme that has attained independent master trust assurance, for example, can have confidence that it is being operated in line with our DC quality features."
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