Following concerns that Master Trust pensions are not offering sufficient protection to their 6 million investors (2); better protection is on the way thanks to a new government bill.
Master Trust pensions are typically used by smaller employees including the government-backed NEST scheme. They are a multi-employer occupational scheme where each employer has its own division within the master arrangement. There is one legal trust and one trustee board with The Trustee retains decision making for each division. Master Trusts offer employers the benefit of a governance function but with low operating costs and greater simplicity than a single employer scheme. (3)
While Master Trusts have advantages there had been concern that their savings might be at risk should one of the pension schemes collapse. Earlier this year the BBC reported that up to a quarter of a million Master Trust members might not have their savings protected and also raised questions about the capability of some of the people setting up schemes (2).
The new bill aims to tighten up on some of these and other concerns. Master Trust pensions will now need to meet higher standards of governance, there will be new powers for the regulator and there will be a new cap to be put on exit fees from pension pots. Pensions minister Richard Harrington said:
“We want to make sure that people saving into master trusts enjoy the same protection as everyone else, which is why we are levelling-up that protection, to give these savers more confidence in their pension schemes.” (3)
Under the new bill operators of Master Trust schemes will have to demonstrate that they are “fit and proper”, the schemes are financially sustainable, governance and administration is in place and there is a robust continuity strategy.(1) Lesley Titcomb from The Pension Regulator has given a positive welcome to the bill.
“We are very pleased that the Pension Scheme Bill will drive up standards and give us tough new supervisory powers to authorise and de-authorise master trusts according to strict criteria, ensuring members are better protected and ultimately receive the benefits they expect.”
While the bill has received most positive feedback, the boss of a major Master Trust scheme, Now: Pensions, has expressed disappointed that a kitemark of assurance for such schemes has not been made compulsory. “Making it compulsory and building on this existing framework seemed logical.” (4)
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.