The government has been signalling its concern about the master trust industry for some time. Having launched auto-enrolment, the government is keen to ensure that the contributions made by and on behalf of the millions of now-enrolled employees are looked after properly.
In 2014, the ICAEW issued its supplement (TECH 07/14 AAF) to the framework for assurance reports on third party operations (AAF 02/07), specifically aimed at master trusts. In this supplement, they were encouraged, but not mandated, to obtain independent assurance over their operations’ administration and governance.
A proportion of the master trusts in existence at the time obtained these AAF reports; some submitted both the AAF report and other supporting information to The Pensions Regulator (TPR) for it to consider whether these master trusts were sufficiently well-run to be included on the TPR website.
With the rapid expansion of the number of master trusts competing to provide pensions solutions (to an ever-growing number of employers who need to comply with auto-enrolment), TPR made it clear it was keen to raise the compliance bar, encouraging master trusts to meet the highest governance standards.
With this aim in mind, the government pushed through the Pensions Scheme Act 2017 (PSA17) just before the dissolution of Parliament in May 2017.
The new regime requires all master trusts to be authorised by TPR. It is also clear master trusts must be made more comparable, enabling employers to make an informed choice when selecting their auto-enrolment provider.
However, much of the detail has yet to be codified in law. What is clear, so far, is the following:
Authorisation from TPR will be required to operate a master trust, which must:
- Be run by ‘fit and proper’ individuals and organisations
- Be able to show financial sustainability
- Have sufficient systems and processes to effectively run the scheme
- Have an adequate continuity strategy
Those involved with master trusts must notify TPR of significant and triggering events within required timescales. These duties take retrospective effect from 20 October 2016 and the following applies:
- Particular role holders within a master trust will have specific duties to perform.
- Potential penalties for failure to comply could be significant. For example, delays in providing information to TPR may result in fines of up to £10,000 per day.
- Annual accounts for both the master trust and the scheme funder (those organisations sponsoring a master trust) will need to be filed with TPR within nine months of the master trust financial year-end.
- In future, TPR may require a supervisory return to be filed, although further legislation is required to put this in place.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on www.smithandwilliamson.com prior to the launch of Evelyn Partners.