Last-minute changes made to the master trust authorisation process by the Pensions Regulator have made it hard for a number of schemes to apply, a senior master trust figure has said.
Master trusts have until April 2019 to apply to the regulator for authorisation, and the process has been open since October.
In May, the regulator launched a programme in which it provided master trusts the opportunity to submit draft applications and receive feedback on their submissions. However, following the readiness review the watchdog made changes to its questionnaires and forms, according to several market participants.
David Bird, head of proposition development at the LifeSight master trust, said the regulator has learned a lot from the readiness review and has reflected these lessons in the guidance it issued at the beginning of October.
“As the regulator has completed the readiness review and put out the guidance, and the questionnaires, and the forms, they’ve changed a fair amount in what they’ve been asking for, and we gather that that’s making a lot of the master trusts struggle,” he said.
They’ve changed a fair amount in what they’ve been asking for, and we gather that that’s making a lot of the master trusts struggle
David Bird, LifeSight
LifeSight’s conversations with the regulator have revealed that TPR did not expect many applications in the first month, he said.
This is in part due to the changes it has made to the authorisation process following its readiness review. It received 33 draft submissions in response to the review.
TPR reacts to its review
Changes made to the process include a clarification of the role of trustees holding a position of independent oversight, Bird said, “which for some of the commercial master trusts – they haven’t necessarily been set up in that way”.
The regulator recently disclosed that 30 master trusts have exited or are exiting the market, leaving 58 that will either need to apply for authorisation or depart.
Bird confirmed that his master trust is applying for authorisation in the first month of the window. It does not expect to receive its authorisation until 2019.
A spokesperson for the regulator said it expected applications for authorisation to span the six-month period, and that its code of practice and guidance set out its expectations of the schemes.
"We have added to our guidance to incorporate learning and feedback from the industry to clarify or provide additional information to support master trusts applying for authorisation, they continued.
"Schemes looking to apply for authorisation should make sure that they understand the legislation and code of practice, have read the guidance we have produced and provide full and complete evidence with their application. Schemes have six months, until March 31 2019, to apply."
Master trusts getting clarity from TPR
The regulator’s feedback urged master trusts not to submit additional information without explaining why it has relevance. “Providing unnecessary information may dilute our view of the application,” it said.
Kate Smith, head of master trust at Aegon, observed that the regulator is now “asking for more than they were before”.
“Some of that’s clarity, she said, “but some of it [is] because they felt they did need more, and they need more explanation to try to make clear to all of us… about what’s needed”.
The authorisation application must come from the trustees, and not the company. Smith recognised that some master trusts will have more work to do than others.
“Some of it will be brand new to some master trusts, particularly those that did not actually go through the draft submission,” she said, adding that those who are not regulated by the Financial Conduct Authority or Prudential Regulation Authority would also be less familiar with the themes of the authorisation process.
Looking to the future
As the market begins to shrink, the master trust is becoming a more appealing defined contribution solution for employers, according to LifeSight's research.
Over the next three years, the proportion of businesses that anticipate having a master trust as their main DC scheme is set to more than double, rising to 26 per cent from 12 per cent.
Bird predicted that within the next four to five years, the market will be left with “a very small number of large auto-enrolment specialist providers”, adding: “I can’t imagine there’ll be more than two or three people in that market.”
He also predicted that some more specialist, trade-specific master trusts, insurers, and employee benefit consultancy-provided master trusts such as LifeSight, would continue to operate in the market.
Stephen Coates, principal at JLT Employee Benefits, recognised the difficulties faced by smaller providers in the authorisation process.
“Some of the smaller master trusts and numerous small single employer trusts simply may not withstand this level of scrutiny, driving consolidation in the market,” he said.
He added that, even with a 50 per cent drop in the number of master trusts, “the market will remain oversaturated”.
Master trust authorisation: How important is timing?
Analysis: From this month, master trusts have until April 2019 to apply to the Pensions Regulator for authorisation. What has the watchdog’s feedback shown us so far, and how will timing of applications come into play?
Coates recognised that some of the larger providers and insurers are responding positively to regulatory changes that are taking place in DC, with auto-enrolment and independent governance committees driving better oversight and responsibility.
“The result is a move to scale and quality – and we are seeing a significant qualitative advancement in what is on offer in the bundled/master trust and group personal pension market.”
