Employers which currently use, or are thinking of using, a master trust to provide pensions for their employees could be affected by an upcoming change in the law.
From October, existing master trusts will need to apply for authorisation from The Pensions Regulator or, if not, wind up and transfer members elsewhere. This reflects the fact that such schemes have grown rapidly in size over the last few years, mainly due to automatic enrolment.
Some of the new requirements have been subject to a recent consultation but pending the publication of a code of practice in the spring, there is still a degree of uncertainty regarding their impact. This means that some master trusts have yet to decide whether to continue or not.
If an employer uses, or is thinking of using a master trust, they should consider asking the master trust provider if it intends to seek authorisation, if any changes will need to be made to the master trust in terms of employer costs or governance arrangements, and whether plans will be put in place to communicate such changes to employers or members.
It could be a little while before the master trust will know if it has obtained authorisation, even once it has applied, because The Pensions Regulator has six months to respond. Employers should therefore continue to monitor developments over the next 12 months or so.
Meanwhile, existing master trusts are under a duty to report certain ‘triggering events’ to The Pensions Regulator, the employers and members. These are key events that could impact on the future sustainability of the master trust. Such a report is expected to protect members against increases in charges and to trigger contingency plans. Employers which receive this kind of report should give it serious consideration, because it could mean they need to change their pension arrangements in the future.
Helen Ball is partner at Sackers