So the starting gun was fired on 1st October. The beginning of the much-anticipated opening of the six-month window where Master Trusts operating in the market needed to apply for authorisation.
The Pensions Regulator has identified over 90 Master Trusts operating in the market as at the end of October. The current state of play is that three schemes have wound up, 33 have decided not to apply for authorisation and are now in the process of wind up, and one scheme has applied for authorisation. This leaves 53 Master Trusts that will either have to seek authorisation or exit the market over the coming months.
Early on in the process, there was speculation that there would be a rush to get authorised - some sort of first mover advantage. This hasn't materialised which is a good thing, as this is an important part of our Automatic Enrolment journey and is not appropriate for marketing. Requirements around fit and proper, scheme funder, systems and processes, the need to have a continuity strategy and financial sustainability are high hurdles for Master Trusts to overcome, and it appears that the vast majority have heeded the Regulator's warning of don't be the first to fail…
But what will this mean for the market as a whole and the future of pensions regulation?
The authorisation regime is a new approach for TPR and involves a fundamental shift in the way it regulates. This was much needed as its previous powers just weren't really suitable for regulating in the modern world. Yes, the trust-based model works if done well, but there are too many points at which it can fall down, and it is here that the Regulator needs to step in.
The advent of new DB consolidators and CDC schemes will also need to be addressed. Making sure schemes, whatever their shape and size, are fit to be in the market is essential to ensure adequate protection for members and therefore trust in our industry. Ongoing and grown-up supervision is also an important component of the new regime and the benefit of the new framework is that it formalises a regime for DC schemes where the Regulator and schemes can work better together to improve outcomes for members. This collaboration would work equally well for DB consolidators and CDC.
No matter what pensions scheme an individual is saving in, they need to ensure it is secure, that the admin is good, that people running it have the skills and experience necessary, and that systems and controls are in place to stop things from going wrong. We are already seeing a shake-up in the Master Trust market and my money is on some of those 53 schemes deciding not to go down the authorisation path precisely because the bar has been set very high. So we will see a dramatically consolidated market, with a focus on quality and value.
What this all means for single employer trusts remains to be seen. But I can certainly see the case for taking some of the aspects of the new Master Trust authorisation regime and applying it to the single-employer trust space. Having schemes pre-authorised to some degree or another will do a lot to ensure they are set up to deliver for members. It would also be a useful tool in preventing scams. For the avoidance of doubt, I'm not saying that there aren't great trust-based schemes out there at present - there are. Where better regulation is needed is to ensure all pension schemes meet the standards required to deliver for their members. After all, what's good for the goose is good for the gander… and pensions are far too important to people to take a chance.