Putting the ‘Trust’ in Pension Schemes

One of the key points in the recent Pensions Bill related to master trust schemes, which many employers will have opted to use for auto enrolment. Those who operate these schemes face a raft of new regulations.
 
This is good news for members – and the positioning of the Pensions Regulator and HM Revenue & Customs to look to protect all members of pension schemes is vitally important.
 
We have a generation retired today who lost pensions in the past as a result of failed defined benefit schemes. They were not protected by either the Financial Assistance Scheme or the Pension Protection Fund.
 
The opportunity to set up mastertrusts with little control and ongoing scrutiny could have created a pensions disaster of the future. This would, and still could, undermine the success of auto enrolment.
 
The new requirements are unlikely to create too much additional work for the well-run mastertrust providers, but may generate too much additional bureaucracy for others. Financial tests will prove challenging for many as they simply do not have the scale, nor will they create it in a market which is now down to micro employers.
 
Even some schemes with scale may struggle as they find it difficult to maintain funding. It is hard not to envisage the number of autoenrolment mastertrusts being reduced drastically from current levels over the next few years, and that there will be some consolidation in that world.
Already, the majority of members auto enrolled are in the main four schemes.
 
The Pensions Regulator has estimated that 6.7 millionemployees have auto enrolled in master trusts up to 30 September 2016. The Government-sponsored National Employment Savings Trust (NEST) is estimated to have more than 4 million members, People’s Pension and Legal & General over 2 million each and NOW Pensions circa 1 million members.
 
Since 2012, some people have found themselves in more than one scheme as a result of employment movement, but it is clear that of the other 90 – plus master trusts membership figures are low and business plans for sustainabilityweak.
 
Employers need to ask themselves if they have opted for the right scheme and whether they might want to be involved moving forward.
 
Master trusts which already hold the mastertrust assurance should survive, but smaller schemes will struggle, especially in view of the regulator’s requirements for existing schemes to verify their sustainability, viability and quality.
 
There are currently only 13 schemes which have been independently reviewed against the master trust assurance framework:
 

• Ascot Lloyd Pension Trust
• AutoEnrolment.co.uk
• BCF Pension Trust
• Legal & General WorkSave Master Trust Pension Scheme
• National Employment Savings Trust (NEST)
• National Pension Trust
• NOW: Pensions
• SEI Master Trust
• Standard Life DC Master Trust
• The BlueSky Pension Scheme (TBPS)
• The Pensions Trust
• The People’s Pension
• Welplan

 
Assuming the Act passes through parliament, regulations will be drafted by the Department for Work and Pensions. But it is already clear that it will be more difficult to set up a new scheme and the increased scrutiny will, no doubt, lead to some market changes.
 
Alan Fergusson is responsible for the strategy and development of employee benefits within the Mattioli Woods Group, having continued the role he started within Kudos Financial Services Limited prior to its acquisition in 2011.

Alan has worked in the financial services industry since 1989 and has spent the last 17 years advising corporate clients on their employee benefits design, structure, implementation, and ongoing administration. He also sits on the board of the World Broker Network, representing both the UK and employee benefits on the global network.

About Mattioli Woods plc
Mattioli Woods plc is one of the UK’s leading providers of wealth management and employee benefit services, advising over 6,000 clients with assets under management, administration and advice in excess of £6 billion. With offices throughout the UK, it aims to provide trusted advice, high service standards and personalised delivery.

Alan can be contacted on 01224 652 100 or by email at alan.fergusson@mattioliwoods.com