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Ensuring an effective route to Master Trust supervision

The pensions and savings reforms introduced in the past decade have proven a good step forward to increasing pensions savings. The number of employees with an active workplace pension has risen from 47% in 2012 to 73% in 2017, and approximately 2/3 of these employees have their pensions savings in a master trust.

Master trusts have existed for many years although have come to prominence after the introduction of automatic enrolment, with many employers choosing to enrol their employees in a master trust scheme instead of setting up their own workplace pension. Earlier this summer The Pensions Regulator (TPR) published a draft policy setting out their approach to the supervision of master trust pension schemes, to ensure that 10 million consumers whose long-term savings are invested in master trusts are protected by strong governance, fit and proper tests and other safeguards that have been in place in the contract-based sector for many years.

The ABI welcomed  the draft policy and believes TPR’s risk-based approach and calls for routine supervision are appropriate. The ABI believes that providers of master trust schemes used for automatic enrolment should meet high solvency and reporting standards, having previously called for tighter regulation of master trusts, to reduce the risk of poorly run master trusts and master trusts being used for fraud.

The ABI is, however, concerned that the introduction of new regulation by TPR will duplicate other regulatory regimes, and as such, create additional costs and over-reporting with little or no benefit to member protection. In particular, when assessing risk, we are calling for TPR to take into account how other regulatory regimes, in particular the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), reduce the possibility of an insurer run master trust scheme being unable to fulfil its duties.

Earlier this year the ABI called for Government policy on savings and retirement to be grounded in a “long-term, stable and joined-up strategy” based on consensus across Government and industry. This was in response to a joint strategy published by the FCA and TPR. The rise in popularity of master trusts demonstrates that deeper cooperation between regulators is needed.

Many master trusts are provided by insurers, although the trust will be regulated by TPR, the insurance business is regulated by the FCA and the PRA. Therefore, when regulating the master trust, TPR should consider the approach and work done by other regulators. All three regulators need to ensure that their work, including customer-facing elements, align. The prospect of a new regulatory regime with capital requirements for DB consolidators, and potentially for Collective DC schemes, make this cooperation even more important.

The ABI will carry on engaging with our members and TPR to ensure that the master trust authorisation regime is effective and robust.

Last updated 31/08/2018