Master trusts have become increasingly common in the UK pensions industry since the introduction of auto-enrolment in 2012.
There have been discussions for some time about the need for an increased level of regulation to be applied to these schemes and this new regime comes into force today, 1 October 2018.
Anyone involved with the operation of master trusts or who uses a master trust for their employees should be aware of these changes.
What is a master trust?
A master trust is an occupational pension scheme that:
- provides money purchase benefits;
- is used, or is intended to be used, by two or more employers;
- is not used, or is not intended to be used, only by employers who are connected; and
- is not a public service pension scheme.
Many employers who have automatically enrolled their staff into workplace pension schemes will have done so through a master trust.
What happens on 1 October?
From 1 October 2018, a master trust will only be able to operate in the UK if it has obtained authorisation from the Pensions Regulator. Transitional provisions apply which mean that a master trust which was operating before 1 October 2018 will have six months from that date to apply for authorisation.
A number of criteria must be satisfied before a master trust will be authorised:
- those running the scheme must be “fit and proper persons”;
- the scheme’s systems and processes must be sufficient;
- the scheme must have a continuity strategy in place;
- there must be a “scheme funder” which meets certain standards; and
- the scheme must be financially sustainable and have a business plan in place.
The Pensions Regulator has recently published additional guidance and authorisation forms for use by those schemes who are seeking authorisation.
What happens after 1 October?
Once a master trust has been authorised it will be subject to the Pensions Regulator’s supervision regime.
Schemes will be required to comply with all relevant law and will be scrutinised by the Pensions Regulator. Some examples of the duties imposed on schemes and their advisers are:
- certain individuals (including trustees, scheme funders, lawyers, actuaries and other advisers) must inform the Pensions Regulator as soon as reasonably practicable after becoming aware that a “significant event” has occurred (a list of “significant events” has been provided and, amongst other things, includes changes to a scheme’s statement of investment principles and failures to meet milestones in a scheme’s business plan);
- schemes must submit annual accounts to the Regulator;
- scheme funders must submit annual accounts to the Regulator; and
- supervisory returns must be submitted to the Regulator which will cover a wide range of issues around the governance of the scheme.
Who should take notice of these changes?
These changes will be of particular relevance to anyone who:
- currently operates or intends to operate a master trust;
- currently operates a multi-employer pension scheme – trustees of such schemes should check the legislation and their scheme rules to establish whether they are caught by the definition of master trust and are therefore subject to these duties;
- provides advice in respect of a master trust – professional advisers are caught by the duty to report “significant events” to the Pensions Regulator and could be fined if they fail to do so; or
- currently uses or intends to use a master trust in order to provide benefits to its employers.