Master trusts should be approved under a strict licensing regime policed by The Pensions Regulator (TPR), says Adrian Boulding.
The system would be similar to the Bank of England's (BoE) power to approve the establishment of banks.
This radical proposal would be instituted alongside two others: capital requirements and greater powers for TPR to intervene in master trusts.
Boulding (pictured above), who is policy strategy director at the Tax Incentivised Savings Association (TISA), believes the forthcoming Pensions Bill will address gaps in master trust regulation.
He said: "We need a licensing scheme more akin to getting a banking license and powers at the BoE, where serious checks will be made by TPR on those applying for a licence. [If you are establishing a bank] you have to prove you have a business plan and capital; if you don't do that, you don't get a license.
It is "in stark contrast" to the HM Revenue and Customs (HMRC) type approach to approving the start of a pension where HMRC works on the basis an applicant will do everything they are asked to do, added Boulding.
Rules on capital adequacy are also important as the current system leaves savers at risk if a master trust fails. "We should get capital adequacy rules which say ‘if you want to set up a master trust you put your own money into it and you put enough to cover the wind up costs'."
The ability of the regulator to quietly wind up or merge master trusts before the problems become public is also needed. "If you wind up like the way they do now, the employer in question would have gone and found another scheme long before the master trust in trouble gets wound up, sold on and all the rest of it," he continued.
He called for an approach which mirrors building societies. "Building societies, when they merge, there is no hint of the merger. It is all sorted behind the scenes. We need to give TPR statutory powers so they can broker those deals in the interests of the members when there is a master trust not doing particularly well."
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