Legislation must be introduced to stop the cost of master trust wind-ups falling on members, the pensions minister says.
Giving evidence to the Work and Pensions Committee yesterday (9 March), Baroness Altmann said she had been pushing for the necessary legislation to be introduced - and warned that doing nothing was "not an option".
Altmann's comments come on the back of fears that some master trusts may not be sustainable and could end up having to be wound up or merged with another.
While in the event of a wind-up the assets would usually be protected, Altmann is worried the costs of winding-up could come out of members' pensions.
She told the committee: "I'm very anxious that we ensure proper protections are in place. There are a number of ways we can do that - but ideally there would be a legislative route which means we would need legislation and a legislative vehicle to be able to put in place adequate protections.
"This would not just be for the assets - because in most cases the assets will be protected - but we want to make sure if any of these master trusts wind up that the cost of winding them up doesn't fall on members' assets."
Although she did "not want to scaremonger", she pointed out that, as wind-up costs can be proportionally quite large for a small master trust, it could end up having a huge impact on members' pensions.
The committee then asked Department for Work and Pensions (DWP) director of private pensions Charlotte Clark why this issue had not been recognised much earlier on.
Clark said when AE was introduced there was no indication there would be a large influx of master trusts.
She explained: "The [market growth] slightly took us by surprise - now we're seeing the risks we're starting to address this. We want to ensure these trusts are sustainable."
She said the DWP was working through the policy and what the right approach to this so we would be able to legislate as soon as we could."
Altmann mentioned three ways to ensure adequate protections for members in the event of master trust wind-ups:
1) Look at the requirements before a scheme is approved - (master trusts are currently approved by HM Revenue and Customs)
2) Give the regulator more powers legislatively to require schemes to do certain things
3) Introduce insurance (although there wouldn't be a government guarantee)
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