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Pension master trust authorisation regime awaits code of practice


Multi-employer 'master trust' pension schemes now have sufficient detail to prepare for the new authorisation and supervision regime following the latest publication by the government, an expert has said.

A response to its consultation on the regulations which will govern the new regime provides further clarity over fees as well as which schemes will be excluded, according to Tom Barton of Pinsent Masons, the law firm behind Out-Law.com. Further detail will be set out in a code of practice and guidance, which The Pensions Regulator (TPR) is expected to publish for consultation next week.

The government is yet to publish the final form of the regulations, but intends to do so in time for them to take effect on 1 October 2018.

"There are no game changers in the consultation response although the application fee has come down, which will at least help trim down the overall cost of the project," said Barton.

"There's still some uncertainty while we wait for the code of practice and associated guidance, but not to the extent that preparation should be delayed. The generality is clear, and has been for a good while now; as is the policy objective. Having regard to that policy objective will help master trusts along the right path, even if they are still waiting for the code of practice to fill in some of the detail," he said.

Master trusts enable pension scheme providers to manage a defined contribution (DC) scheme for several employers under a single trust arrangement. Although required to comply with the relevant pensions legislation and expected to comply with the standards set out in TPR's codes of practice, master trusts are not currently regulated to the same extent as the contract-based group personal pension schemes overseen by the Financial Conduct Authority (FCA).

To address this policy gap, the government legislated for the creation of a regulatory regime for master trusts as part of the 2017 Pension Scheme Act. Once in force, master trusts will be required to apply to TPR for authorisation and will have to demonstrate that they meet five criteria: they must be financially sustainable; have sufficient administrative and governance arrangements in place; be run by fit and proper persons; have adequate continuity arrangements in place in the event of financial difficulties; and have scheme funders that meet specific requirements.

The government has made some changes to the proposed authorisation fees in response to consultation feedback. Existing schemes will be required to pay a flat fee of £41,000, down from a maximum of £67,000, to TPR; while new schemes will be charged £23,000. It has, however, maintained the dual fee structure, on the grounds that a new scheme is "likely to have significantly less evidence for the Regulator to assess" as part of the authorisation process.

For new master trusts, the decision to authorise will be made by the executive arm of TPR. Authorisation decisions relating to existing master trusts will be made by TPR's independent determinations panel. TPR will "work closely" with master trusts seeking authorisation, whether new or existing, to ensure that they are aware of all the requirements they must demonstrate to meet the authorisation criteria, according to the government's response.

Requirements for the business plan that master trusts must supply to TPR will be set out in the code of practice, according to the consultation. The code will also set out how TPR will expect to see the information presented to it in the business plan and accompanying documentation in practice, taking into account the objectives of the scheme and its scale and nature. The effective date of the business plan must not be earlier than six months before application for authorisation, to ensure that it is sufficiently up to date.

The government has also sought to clarify which schemes will be excluded from the scope of the new requirements. These include non-occupational pension schemes, such as group personal pensions; and the defined benefit aspects of mixed benefit schemes. Non-commercial industry-wide trusts will, however, be caught by the regime.

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