The Pension Schemes Bill: good news for members? A trustee perspective…

The publication of the Pension Schemes Bill 2016-17 (the Bill) on 20 October 2016, was heralded as providing ‘game changing’ powers for the Pensions Regulator (tPR) to regulate existing and new master trusts. tPR commented, “For the first time, master trusts will have to be authorised by us before they can open for business.”

As a professional pension trustee to two master trusts, I fully support tPR’s sentiment and desire to regulate this market. We’ve seen a large number of master trusts enter the pensions market in recent years and it is inevitable not all will survive. Some may fail, others may consolidate.

But does the Bill provide better protection for pension members’ benefits?

Certainly, a stronger regime may avoid poorly run master trusts from being set up (or continuing) and therefore reduce the risks to pension members of a master trust failing.

However, unless members of defined contribution (DC) pension schemes wake up to the reality that they need to contribute far more in to their pension pot and be more engaged in fund selection and monitoring of investment performance, I suspect the Bill is the DC pensions equivalent of rearranging the deckchairs on the Titanic.

What does the pensions Bill say?

The key criteria contained in the Bill for tPR’s authorisation of master trusts are sensible and not unexpected. They relate to:

• fit and proper persons running the master trust
• financial sustainability of the master trust including the requirement for a business plan to be in place and provided to tPR by the ‘scheme strategist’
• certain (unspecified) requirements the ’scheme funder’ must meet
• systems and processes
• the requirement for a ‘continuity strategy’ in the event wind-up is triggered

Some of these criteria are a little vague…

Who, for example, is a scheme strategist?

Also, tPR must determine whether it is satisfied systems and processes are ‘sufficient’ to run the master trust effectively, but this is subjective. What is sufficient and who actually determines this? It can have different meanings to different people. Refusal of an authorisation on these sufficiency grounds may lead to challenges.

It is interesting that the master trust assurance framework (MAF) has been omitted as one of the key criteria for authorisation. Perhaps this will be clarified by regulations under the systems and processes part of the Bill. It would be surprising if MAF was dropped completely given tPR has used it as a baseline requirement for master trusts to be listed on its website.

It is also notable that the Bill is intended to only regulate master trusts that provide ‘money purchase’ benefits or money purchase benefits ‘in conjunction with other benefits’ (presumably defined benefit (DB)). It doesn’t regulate existing or future master trusts that are multi employer DB schemes. Is this an oversight or does tPR consider sufficient protections already exist for DB master trusts?

My view is all master trusts should have the same regulatory framework to ensure a consistent approach to authorisation and to avoid any potential future problems. Some pension members may, indeed, be better protected as a result of the Bill (once enacted), but not all. Has there been too much focus on the process of authorisation to provide the good member outcomes tPR’s Code of Practice requires for members of DC schemes, and too little on strengthening protection for all?

 

 

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