The Pensions Regulator (TPR) has warned schemes that making future changes to benefits or structures could cause them to become subject to its master trust regime.
Although schemes may not currently meet the definition of ‘master trust' in law, seemingly innocent changes to the benefit structure could mean they suddenly have new obligations and requirements.
Such instances could include where a multi-employer defined benefit (DB) scheme or a DB master trust decides to offer defined contribution (DC) benefits within the same scheme.
A spokesperson for TPR said schemes should contact the regulator once the regime has commenced in October if they plan on making such changes.
"Any occupational pension scheme which provides money purchase benefits for unconnected employers and is not a public service pension scheme will be classed as a master trust under the legislation," they said.
"We encourage trustees to approach TPR if they are considering carrying out any changes which may lead a scheme to fall under the master trust definition after the commencement date on 1 October 2018, as they will need authorisation before making the changes to continue to operate in the market."
The change in status would be immediate upon the change being made and, if this has not been authorised by the regulator, the scheme could be forced to wind up. The regulator recommends schemes seek legal advice if they are unsure.
"If we discover master trusts operating illegally in the market without authorisation, we will notify the scheme that it must be wound up," the spokesperson continued.
Other potentially affected schemes include cluster schemes. These are groups of schemes, none of which are individually master trusts, which are under ‘common control' by three of any of scheme funders, scheme strategists, promoters or markets, or a majority of trustees. It will also affect schemes which have a common service provider or are subject to the same rules, and share at least two of the ‘common control' persons.
"Trustees will be very anxious to avoid being caught by the definition, partly because of the costs involved, but also more particularly because of the pretty onerous compliance regime," he said. "But, they all have good advisers and I think that advisers will be on the ball to make sure that this doesn't happen."
But he added some insurers have been told they may also fit the definition, particularly those with orphan executive pension plans (EPPs) which have proven difficult to wind up because the employer was often the sole corporate trustee but has gone bust.
"It might be that the regulator has spotted an opportunity here because what TPR has been doing is it's spoken to an insurer and claimed that an assortment of these EPPs from Tom, Dick and Harry employers - they could have hundreds of them in some cases - constitute a master trust."
The regulator has said 90 master trusts are having to decide whether to apply for authorisation or wind up ahead of the regime coming into force. Around 20 of these are expected to exit the market.
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