Since automatic enrolment began in 2012, master trusts have accounted for a substantial number of workplace pensions. Their popularity is straightforward: they allow employers to share resources and cut the potential costs of running a workplace scheme. So, if you're catching up with what master trusts are and how they work, this is a good place to start.
From video game developers to site security providers
That's the beauty of master trusts. The type of business doesn't matter. Master trusts are occupational pension schemes which provide pension benefits for the employees of multiple unrelated employers, all under one roof.
At first sight, they are similar to large single employer occupational pension schemes. However, master trusts are set up by a scheme funder rather than an employer and this scheme funder is the business that provides financial support to the scheme. A key difference is that master trusts have a board of trustees that are independent of the scheme funder. The trustees have the same fiduciary duty to act in their members' interests as any other trustee, and schemes are overseen by the Pensions Regulator.
While some master trusts have been set up to serve the automatic enrolment market, and small employers in particular, this isn't the case for all master trusts. There's a wide range of master trusts in the market and it's likely there's one suitable for most employers.
The power of master trust authorisation
With millions of employees' financial futures depending on master trusts, the Government introduced an authorisation requirement in 2018. Since then, all master trusts must be authorised by the Pensions Regulator.
Authorisation involves in-depth assessment against five key criteria:
- People running the scheme are fit and proper
- The scheme is financially sustainable
- The scheme funder can support the scheme
- The scheme has adequate systems and processes in place
- There's a continuity strategy in place to deal with a range of events
After they are authorised, master trusts are individually supervised by the Pensions Regulator and must submit an annual supervisory return to maintain standards.
Master trust regulation and value for money
Trust based occupational pension schemes are subject to the same legislation and need to comply with the Pensions Regulator's Codes of Practice. Where regulation varies based on the size of a scheme, master trusts usually need to comply with the level required by the largest schemes.
Master trusts must also carry out an annual value for money assessment, provide details of charges and returns, and the work they've done to address environmental, social and governance risks, in the same way as large occupational pension schemes.
However, only master trusts have the additional requirement to comply with the regulator's Code of Practice 15, which provides master trusts with the information they need to apply for authorisation and sets out the matters that will be taken into account in deciding whether a master trust should be authorised and remain so. One to one supervision from the Pensions Regulator also means they can be asked to provide documentary evidence at any time to satisfy the Regulator that high standards of governance are being maintained.
The master trust workplace pensions market
Master trusts provide employers and their employees with the reassurance that their workplace pension receives rigorous trustee and regulatory oversight. This, along with the relative ease with which the trustees can arrange a bulk transfer of assets, makes a master trust an attractive proposition for employers with existing trust-based pensions in particular.
But not all master trusts are the same. There's a competitive market with a variety of propositions on offer. Some master trusts will offer a one-size-fits-all route to compliance, while others may tailor offerings to match or exceed what you might expect in a single employer trust and there's everything in between.
An experienced adviser can help you assess your needs and advise which master trust is right for you and your employees.
Find out more about the Aviva Master Trust, here.
SP991603 03/2022
This post is funded by Aviva
