Legislation now in force means all new and existing master trust pension schemes must apply to The Pensions Regulator (TPR) for authorisation to show they meet a revised set of safeguarding standards.
A master trust is an occupational pension scheme that provides money purchase benefits for multiple, unconnected employers.
From 1 October, the new law states that master trusts must satisfy five authorisation criteria to enter or stay in the market. These are: fit and proper persons; financial sustainability; scheme funder; systems and processes; and continuity strategy.
Existing master trust pension schemes now have six months to file an application to TPR for authorisation to continue to operate in the market, while new master trusts must be authorised before they open for business.
Nicola Parish, executive director for frontline regulation at TPR, said: "We pushed for extra protections around this market and are pleased that the law has come into force today.
"The success of auto-enrolment has led to rapid growth in master trusts. Authorisation and supervision is vital to ensure 10 million savers can have confidence that their retirement savings are safe."
Kate Smith, head of pensions at Aegon, said: "This new regulation will drive up standards and make master trusts more financially sound, but most importantly offer greater protection to members."
Figures released today by TPR show that, so far, 30 master trusts have exited or are exiting the market, leaving 58 that will either need to apply for authorisation or exit the market in the coming months.
Sharon Bellingham, senior consultant at Hymans Robertson, said: "Looking ahead, it's pretty interesting to think about what the market might look like 12 months from now. It doesn't take much crystal ball gazing to see that the consolidation already happening will gain pace.
"It's absolutely key to ensure that individuals are protected at all times and it's also important to avoid chaotic market exits that may dilute confidence in the master trust brand. What we've seen so far has been controlled and measured, which is exactly how it should be."
TPR has held discussions with providers to prepare master trust pension schemes to apply for authorisation. The regulator has also published a code and guidance, and has run a voluntary readiness review programme, which gave schemes an opportunity to provide a draft application to TPR and receive detailed feedback.
Parish said: "We have worked hard to ensure we have been clear about the evidence we require from master trusts to demonstrate they meet the standards laid out in law. It is now up to trustees to review the code of practice and guidance, and submit applications through our portal, which opens today."
Bellingham said: "Despite the possible uncertainty that the authorisation application process may bring, it doesn't appear to have dampened activity and dialogue in the market. It's even more critical, however, for employers and trustees considering a master trust to carefully consider who their most suitable provider partner may be."
