The government has announced that proposed fees for mastertrust schemes seeking authorisation have been revised downwards.
In April 2017, the Pension Schemes Act 2017 set out a framework for an authorisation and supervisory regime for defined contribution mastertrusts.
A consultation ran from November 2017 until January 2018. Draft regulations will be put before parliament to enable the regime’s implementation by October.
I think many schemes will be disappointed. Some respondents will be downright livid
Ian Neale, Aries Insight
All mastertrust schemes must apply for authorisation in order to participate in the market from October this year.
The Department for Work and Pensions previously set out two fees to cover the costs of authorisation in its original proposals.
New mastertrusts would be charged £24,000 and existing schemes would have to pay £67,000.
Following the consultation, these fees have been lowered to £23,000 and £41,000 respectively.
The government has rejected calls for equal fees between new and existing schemes, and has also dismissed the feasibility of a tiered fee system.
Fee reduction welcomed
According to the paper, a number of respondents called for a tiered authorisation fee that would be based on the complexity of the application.
It observed that “the regulator would need to predetermine the complexity of the application prior to assessing it, because the fee for authorisation must be paid at the point of application”.
The regulator concluded that the scheme’s status as either new or transitional should be retained for determining fees, as “this is the factor that will clearly drive the cost of processing an application”.
Adrian Boulding, director of policy at mastertrust Now Pensions, described the government’s published response as a move in the right direction and welcomed the reduction in authorisation fees.
“We have campaigned for the fees to be the same for both new mastertrusts and existing mastertrusts,” he said.
Boulding questioned the extent to which the cost of authorising current mastertrusts would exceed that for new schemes, given existing protections.
“While we took TPR’s point that existing mastertrusts are probably bigger… to a large extent the authorisation application will rely upon third-party assurances like the mastertrust assurance framework,” he added.
The mastertrust assurance framework provides an independent assessment of schemes against set criteria issued by the regulator.
Should the same rules apply to everyone?
A number of respondents voiced grievances over the widespread applicability of the authorisation regime.
The proposals cover a wide range of schemes including not-for-profits, schemes with small memberships and those “with a ‘community of interest’”.
Ian Neale, director at pensions intelligence service Aries Insight, acknowledged the concerns of some schemes.
“I think many [schemes] will be disappointed. Some respondents will be downright livid,” he said.
Neale suggested that objections may have arisen from mastertrusts which had been set up by charitable bodies and churches, which are made up of a large amount of small employers.
“In some cases they feel that the cost and the administrative burden threatens the viability of the scheme,” he said.
The report states that it was never the intention to limit the definition, and thereby the authorisation requirements, to purely ‘commercial’ schemes.
But Neale pointed to the financial outlay many schemes have already committed towards meeting regulatory standards.
“Some mastertrusts have spent around £100,000 on getting in the mastertrust assurance framework and the government has not acknowledged whether that will be taken into account...I think that’s pretty poor,” he said.
Members are entitled to the same protections
The government always intended to include these schemes in the regime. Its response states: “The regulator’s assessment will not be as complex as for an established scheme which is already in operation, and where there will be historical data to review and assess.”
It continues: “New schemes will be subject to higher supervision, however, the cost recovery only relates to the authorisation application, therefore, this will not be reflected in the fee.
New regime could reduce number of mastertrusts by a third
The government has set out draft regulations for defined contribution mastertrusts, estimating that the rules will cut the number of mastertrusts to about 56 from 87.
While a number of the bodies were not set up with a commercial focus, Richard Butcher, managing director of professional trustee company PTL, thought their members merited the same treatment as counterparts in more mainstream schemes.
“The members of those multi-employer schemes still deserve protection,” he said. “Why shouldn’t the same sort of high standards apply to them that are applied to ‘commercial’ mastertrusts?”
