Master trusts

2018 has been the year of legislation in the pensions industry. See how we can help and what the future holds

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Cathy Allen
Published: 24 Sept 2018 Updated: 13 Jun 2022

2018 has been the year that the Pensions Regulator (tPR) increased their focus on the position of master trusts in the pensions industry. The rapid growth of Master Trusts and their growing influence over a huge number of employed individuals and an ever increasing asset value under their control has made some individuals within tPR and central government very nervous. Appropriately, they have called for master trusts to be governed and run properly for some time and 2018 has been the year of legislation to enforce compliance with “best-in-class” behaviour.

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How did we get here?

In 2014 tPR and the ICAEW introduced the Master Trust Assurance Framework (TECH 07/14 AAF 02/07). A number of master trusts went through the process of obtaining this independent assurance. However, only a few went the extra step to obtain tPR sanction (requiring some extra compliance information to be provided) so they could call themselves “accredited” (only nine master trusts as at June 2016). A revised AAF supplement (TECH12/16) was then required for any master trust wishing to obtain assurance for periods commencing on or after 1 January 2017.

A few more Master Trusts obtained accreditation in the following months.

This approach did not satisfy tPR or the government that master trusts were being run in the best manner. As a result, a Pensions Scheme Bill was drafted, went through the consultation process, resulting in the Pension Scheme Act 2017 (issued 27 April 2017). This set out the need for formal accreditation of all Master Trusts to operate in the market place. It made it clear that the detailed requirements would follow, which they did in the form of the Occupational Pension Schemes (Master Trusts) Regulations 2018 (effective on 1 October 2018) (“The Regulations”).

Where are we now?

The master trust industry; both the schemes and the professionals that advise them, have been consulted and involved in the process of drafting the Regulations; although their concerns have not been addressed in full. The final Regulations are detailed and onerous and no-one is in any doubt that operating in the master trust space is now expensive and challenging – amateurs or half-hearted organisations need not apply.

Each master trust must now obtain authorisation from the Pensions Regulator to continue to operate or, in the case of new Schemes, to commence operation. For those already in existence, (around 80 schemes), an authorisation application together with tomes of supporting evidence will need to have been made within six months of 1 October 2018. Around 33 schemes have submitted trial applications and information in a “dummy run” with tPR, from which they will receive feedback, allowing them to refine their actual submission before it is submitted in final form.

The key elements that each master trust will need to evidence exist and are in operation at the trust are as follows:

  • Everyone involved in the trust are “suitable and appropriate” people
  • The scheme is financially viable in the long-term
  • The trust funder (the organisation backing it) meets specific requirements
  • The systems and processes used to run the trust are appropriate to ensure it runs effectively
  • The trust has adequate continuity plans to weather its future

Behind these broad requirements are detailed expectations set out in the authorisation application forms, which are still in line with the draft consultation requirements. This sets out the evidence requirements around each of the above elements and covers matters such as: how the trustees are comfortable that the underlying IT security, the operations of transactions and that the investment of member contributions are all happening as they should, with any issues being communicated and resolved as quickly as possible.

Failure to file an application will result in an inability to operate post 31 March 2019 and the master trust will need to wind up; finding another master trust for all of its members to transfer in to. Failure to be approved by tPR will mean much the same. So, the ability to remain in business is dependent on getting this right.

How can we help?

We are working with a number of master trusts to ensure they have adequate evidence around the systems and processes in place. Given the timing of the authorisation applications, this could be fast-tracking the completion of the next AAF report or providing a detailed findings report over the testing undertaken to date on an AAF report already underway. Alternatively, we could simply provide a sounding board around the levels of evidence and likely sources to support the assessment. If you would like to discuss any element of your application or position, please do not hesitate to contact us.

What does the future hold?

Authorisation is currently detailed as being a one-off exercise but, we imagine that, ongoing monitoring and information gathering is likely to follow in due course. How else can tPR be satisfied that the predicted £300bn*2 of funds (currently £20bn*1) will be held safely and, will provide the retirement incomes for at least 7 million individuals who will have savings within them?

*1 The Pensions Regulator 2016
*2 Hymans Robertson Research 2017

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 Smith & Williamson prior to the launch of Evelyn Partners.