Larger mastertrusts welcome imminent regulation
Providers have welcomed plans to increase regulation of mastertrusts, as the government reveals it intends to bring in legislation for the arrangements “as soon as practically possible”.
Many of the larger mastertrusts have been vocal in calling for greater scrutiny for some time, claiming the barriers to entry for the sector are too low and may not best serve members.
Harriet Baldwin MP, economic secretary to the Treasury, revealed the plans during a public bill committee for the Bank of England and Financial Services Bill last week.
Consolidation seems inevitable and must be done in an orderly way that ensures members are protected. If decisive action isn’t taken, the success of auto-enrolment could be unintentionally undermined
Responding to points raised by MP Rob Marris, she said: “The government will bring in legislation on mastertrusts… as soon as practically possible. We had considered bringing it in as part of [the Bank of England and Financial Services Bill], but we felt that since the bill had gone through the House of Lords it would be very late on in the legislative process to introduce something as extensive as that.”
Protecting members
Helen Dean, chief executive of mastertrust Nest, said Nest takes building trust seriously and would “support moves* to give savers across the board peace of mind that schemes they’re enrolled into are doing the right things for their members”.
Morten Nilsson, chief executive of mastertrust Now Pensions, said in contrast to regulation for contract-based schemes, rules around mastertrusts were surprisingly absent in the UK.
“When we came to the UK I was astounded by how easy it was to establish a mastertrust. There is no licence or regulatory authorisation required and no rules around capital adequacy.”
“Not all mastertrusts are the same, and with over 70 operating in the market, employers need to be cautious and make sure they are selecting a provider that is sustainable and has sufficient capital, so that member assets are not put at risk if they don’t achieve their hoped-for business growth.”
He said market consolidation would have to be carefully managed. “Consolidation seems inevitable and must be done in an orderly way that ensures members are protected. If decisive action isn’t taken, the success of auto-enrolment could be unintentionally undermined.”
Not ‘out of the blue’
Paul Darlow, head of proposition development at consultancy Xafinity, said regulation of some sort had been expected.
“This didn’t come out of the blue,” he said. “Various industry bodies have been making noise for some time now that this [area] needs to be looked at… the only new thing is the speed at which the government seems to be looking to move.”
In May 2014 the Pensions Regulator published its mastertrust assurance framework.
Darlow said: “In my view a very simple change that would give people a lot of comfort would be for the mastertrust assurance framework to be made mandatory.”
He added: “I think it would have the effect of forcing the smaller mastertrusts that haven’t got off the ground to take some action, transferring elsewhere or shutting down.”
*The original version of this article misquoted Helen Dean as saying Nest would "support a move to give savers across the board peace of mind that schemes they're enrolled into are doing the right things for their members". This has now been corrected.