Pension schemes urged to take urgent advice on 'master trusts'

Out-Law News | 14 Dec 2018 | 3:19 pm | 2 min. read

Pension schemes have been urged to take urgent legal advice to ensure they do not fall foul of new UK laws on 'master trusts', following a warning by the Pensions Regulator (TPR).

Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, who specialises in pensions law, warned some pension schemes may not be aware that the new legislation applies to them.

Master trusts are a form of workplace pension scheme and allow multiple, unrelated employers to participate. A new supervisory regime for multi-employer 'master trusts' took effect on 1 October. It requires master trusts to demonstrate that they meet certain criteria and apply for TPR authorisation. Existing master trusts that do not apply, or which are refused authorisation, will be required to wind up. The deadline for master trusts to either apply for authorisation or trigger their exit from the market is 31 March 2019.

TPR has issued new 'step-by-step' guidance to help schemes check if they fall within the definition of master trusts and therefore the new legislation. It warned schemes that are in scope but which fail to either apply for authorisation or trigger their exit from the market by 31 March 2019 that they will be breaking the law and face being wound up.

According to the regulator, there are 90 master trusts in the UK, three of which have exited the market already, while 32 have triggered their exit. Pinsent Masons understands that only two have submitted an application for authorisation to-date. It is expected that a large part of schemes that have neither applied for authorisation nor triggered their exit yet will apply, and many are at a very advanced stage with their preparations.

TPR has previously said that more than half of people who have been automatically enrolled into a workplace pension scheme by their employer are saving into a master trust scheme, which now account for £16 billion worth of savings from nearly 10 million people.

Barton said, though, that the master trusts legislation will apply to other pension schemes too.

"The master trust legislation is complex and extends well beyond the commercially driven master trusts that cater for the auto-enrolment market," Barton said. "Many older industry wide schemes and so-called NAMES schemes are now treated as master trusts. The upshot is they need to apply for authorisation from the Pensions Regulator to carry on – and this is an expensive and extremely laborious process."

"Any scheme that might consider itself potentially covered by the master trust legislation should take legal advice as a matter of urgency. The warning signs are where schemes have unconnected participating employers and provide genuine money purchase benefits, not just additional voluntary contributions. This can bring ostensibly defined benefit employer-run schemes into the mix for historical reasons," he said.

Barton said there are measures schemes can take if they are a master trust "by virtue of a quirk" in the rules, but that "the time for addressing this is getting shorter and shorter".

Nicola Parish, executive director for frontline regulation at TPR, warned pension scheme operators that the 31 March 2019 is a hard deadline and that there is no ability to raise an appeal after it expires.

"It is the law that, from April 2019, any master trust schemes operating without authorisation will have to close and transfer members to another master trust," Parish said. "It’s really important that scheme trustees use our guide and seek additional advice if they need to, or they could find themselves being forced to wind up in four months’ time."

"From April 2019, for schemes which already exist in the market and haven’t applied for authorisation, there is no appeal process, no opportunity to file an application – no other option than to wind up. We have been working with schemes we think meet the definition of a master trust, but trustees will always know their structure best, and it is their responsibility to check whether their scheme is a master trust," she said.