What’s a master trust?

The past few years have seen a huge increase in the number of people investing for later life in Occupational Pension Schemes (OPS). Much of this growth is driven by increases in the membership of master trust schemes which account for the majority of members who have been automatically enrolled since 2012.

So, what is a master trust?

Very briefly, it’s a defined contribution, occupational pension scheme which is set up under trust. It may be set up to make a profit for the scheme funder (the person or company that picks up all of the costs), or on a not for profit basis. Its aim is to provide workplace pensions for unrelated employers. This contrasts with traditional OPS schemes that are set up to provide a workplace pension for a single employer, or a group of employers that are part of the same group of companies.

While some master trusts have been set up to serve the automatic enrolment market and small employers in particular, this isn’t the case for all master trusts.      

Scheme Trustees

All Occupational Pension Schemes are governed by a board of trustees who are jointly and individually liable for everything to do with the pension scheme. Their role is to make decisions about the pension scheme solely in the interests of the scheme members.

In a traditional OPS, member-nominated trustees sit on the trustee board. Member-nominated trustees aren’t required in a master trust but the majority of board members must be independent of the scheme funder, to mitigate any conflict of interest.

Regulation

All OPS are subject to the same legislation and need to comply with the Pension Regulator’s Code of Practice. The trustees of all OPS, including master trusts, need to carry out an annual value for money assessment and provide details of this assessment, as well as provide other information online for anyone to read.

In addition to the above, master trusts need to be authorised by the Pension Regulator (TPR). New regulations require all master trusts to submit an application to TPR by April 2019 if they wish to remain in force.

The application will lead to a comprehensive assessment of how master trusts comply with the Pension Regulator’s Code of Practice, along with an assessment of all individuals involved with the scheme, and the scheme’s financial backing. TPR have the power to close down any master trust that fails to meet the authorisation standard, or as part of their ongoing regulatory oversight.

Sustainability

OPS are not subject to the same Solvency II requirements or Financial Services Compensation Scheme protection as workplace personal pensions, unless the trustees choose to invest member funds with an insurer. 

To make sure that member benefits are protected in a master trust, additional regulations to limit charges on wind up have been introduced. These, along with a requirement that the scheme trustees have access to enough funding to pay for the wind up of the scheme and to run it for up to two years, should provide comfort that, if the worst happens, members’ benefits will be protected and employers will have time to find a new provider.

Which master trust?

Master trusts provide employers and their employees with reassurance that their workplace pension is subject to trustee oversight. This along with the relative ease with which the trustees can arrange a bulk transfer of assets makes master trust an attractive proposition for employers with existing trust-based pension schemes.

Although authorisation should provide additional comfort to all stakeholders around master trust governance and finances, not all master trusts are the same. An experienced adviser should be able to advise you as to which master trust is right for you. This might be a master trust that offers a one-size-fits-all route to compliance, or one that offers the level of bespoke capability you might expect in a traditional OPS, or anything in between.             

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