Since 2012, when employers began automatically enrolling employees into pension schemes, the master trust market has exploded in size and popularity. Membership of master trusts has grown from around 0.2 million in 2010 to around 7.1 million by 2016, according to The Pensions Regulator’s annual DC trust: presentation of scheme return data 2016-2017 report.
As minimum automatic enrolment contributions increase, the master trust share of the pensions market looks set to increase further still, and master trusts could eventually be responsible for millions of members and their future retirement.
This has led the government to introduce new rules to improve the sustainability and governance of master trusts. As a result, new and existing master trusts will have to apply for authorisation from the Pensions Regulator from October 2018, or wind up and transfer their members elsewhere.
The raising of standards and increase in legal protection for members has largely been welcomed by the industry. However, some of the details remain a little unclear, pending the approval of final regulations. The shopping list of requirements that must be met in order for a scheme to become authorised leave considerable discretion to the Pensions Regulator. This means it is not yet possible to know for sure that employers’ existing master trust provider will continue to operate beyond October 2018.
The authorisation process is expected to set a fairly high hurdle for master trusts to meet, and requires them to make a financial commitment, in the form of an authorisation fee and upfront provision for meeting certain costs. As a result of this, not all of the existing 87 or so master trusts will wish to go down the authorisation route.
Employers who already use a master trust, or are thinking of doing so in the future, should ask if it intends to seek authorisation. If not, employers will need to understand what plans the master trust has to move members into an appropriate alternative arrangement, so that they can consider how they will continue to meet their obligations as an employer going forward.
Helen Ball is partner and head of defined contribution (DC) at Sackers