How TPR is managing master trust exits
Master trust authorisation will see a significant number of schemes exit the market. Nicola Parish explains how TPR is overseeing this process.
Since the window for master trusts to submit an application for authorisation closed at midnight on 31 March, The Pensions Regulator (TPR) now has a clearer picture of the possible shape of the future market.
There are 30 schemes which have applied for authorisation and a further 10 which have an extension and are expected to submit an application.
Depending on the outcome of those applications, that means that by the end of this year the market of authorised master trusts could total up to 40 schemes. If new master trusts gain authorisation and enter the market, this number could be higher.
The purpose of authorisation is to better protect members by putting better safeguards around this market. It has rapidly grown, from serving 270,000 savers in 2012 to nearly 14 million today, as master trusts have been the vehicle of choice for thousands of employers looking to meet their automatic enrolment duties. We pushed for these tougher laws, recognising that existing requirements were not sufficient to adequately protect savers in these schemes.
Consolidation of master trusts was an inevitable and expected result of authorisation. When you introduce new standards to a market some participants will decide to quit and others will be unable to meet that higher bar.
The total number of master trusts in lead up to authorisation was around 90. Up to 40 applications is clearly a substantial reduction in the overall size of the market.
While this reduction was expected, it is important for us to ensure that savers in closing schemes are being protected.
We are overseeing those market exits, checking they are being well managed and intervening where necessary to ensure savers are being protected and employers are continuing to meet their auto-enrolment duties.
As well as introducing an authorisation regime for master trusts, The Pensions Schemes Act also put new requirements in place for master trusts which are winding up.
Since October 2016 the legislation has stopped any master trust from increasing costs and charges to savers to cover the costs associated with winding up a scheme and transferring members to a suitable alternative arrangement. This protects the pension pots of savers in those schemes which are exiting the master trust market.
The legislation also puts requirements on trustees of master trusts to take certain steps through the exit. Trustees must complete an implementation strategy, outlining how a scheme will be wound up, and it must be submitted to TPR. We have to be satisfied with the plans and will oversee them as they are fulfilled. We also have the power to compel trustees to abide by the agreed implementation strategy.
The implementation strategy must contain specific information including where savers and their pension pots will be transferred to, a decision made by trustees which we scrutinise to ensure it's appropriate for savers. It should also detail how employers and savers will be kept informed about the wind up and those communications need to be clear, factual and give employers and savers the information they need to know. We analyse and challenge the implementation strategy where necessary.
We are monitoring the market closely, overseeing exits and stepping in where we have concerns.
We continue to see a healthy consolidation market from a wide range of master trusts which are actively taking on other master trusts of all sizes which are choosing to exit. To date we have no evidence of master trusts being unable to find another provider to take them on.
We will continue to oversee the protection of members in master trusts currently winding up and any schemes which exits the market in the future.
The law also puts in place two reporting requirements which trustees are subject to. Those will provide us with an early indication of any issues that may affect whether a master trust continues to meet the authorisation standards, allowing us to manage and mitigate the impact of any problems.
It will be a helpful additional tool as we move to supervise this market to ensure the standards laid out in legislation continue to be met.
Authorisation puts in place the requirement for master trusts to have the right people, plans, finances, systems and processes in place. But the ultimate aim is to better protect savers. This is at the forefront of our mind, not only when assessing applications for authorisation but also when overseeing exits from the market.
Nicola Parish is executive director for frontline regulation at The Pensions Regulator
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