Tougher mastertrust regulation is the cornerstone of secure DC provision

For the first time, we will have the power to authorise and de-authorise mastertrusts according to strict criteria. We view authorised mastertrusts as the lynchpin of the development of a sustainable and safe occupational defined contribution scheme market.

We have long called for much stricter controls on mastertrust schemes and voiced our concerns over the current very low barriers to market entry.

Mastertrusts will now have to be authorised by us before they can open for business. To remain in the market they will also have to demonstrate to us on an ongoing basis that they continue to meet the strict authorisation criteria, including provisions to ensure member funds are protected in the event of a scheme wind-up.

These are tough new measures that will provide consumers and employers with confidence that the mastertrust market is a safe place to invest their pension contributions.

Benefits to employers and consumers

Well run mastertrusts can bring huge benefits to employers and consumers through high standards of governance and administration, economies of scale, professional scheme management skills, seamless transition from accumulation to decumulation, and good value for members.

Together with our new DC code and guides, authorisation of mastertrusts will help us to drive up standards right across the DC market for the benefit of consumers.

Supervision and authorisation will examine all aspects of mastertrusts' operations and governance, and those that achieve authorisation will be suitable for any employer wishing to use them.

We anticipate that authorised mastertrusts will also offer employers who currently sponsor their own occupational DC schemes an alternative to continuing to run their own scheme.

Market capable of fulfilling its potential

There are currently tens of thousands of DC schemes, many of which are struggling to meet adequate standards of governance and administration, and are unlikely to be able to provide value for money for their members. The consolidation of such schemes into authorised mastertrusts is likely to be in the best long-term interests of both their members and sponsors.

We believe what will emerge from this new regulatory regime is a mastertrust market capable of fulfilling its potential to be the cornerstone of a secure, sustainable and innovative DC savings and retirement market in the UK.

The bill is a significant step in the right direction towards our and the Department for Work and Pensions’ goal of ensuring savers' pension pots are well looked after, as they have the right to expect and deserve.

Andrew Warwick-Thompson is executive director for regulatory policy at The Pensions Regulator