Master trusts must register with The Pensions Regulator

Changes to the rules about pension master trusts come into force on 1 October increasing protection for pension savers through mandatory registration with The Pensions Regulator (TPR) and tougher governance standards 

The regulatory requirements are designed to drive up standards in master trust pension schemes used by millions of people to save for retirement.

Every new and existing master trust will now have to apply to The Pensions Regulator (TPR) for authorisation to show they meet the tough new standards designed to increase safeguards for scheme members. Without this authorisation, HMRC will not work with the Master Trust.

The authorisation and supervision of master trusts by TPR was introduced by the Pension Schemes Act 2017 and Occupational Pension Schemes (Master Trusts) Regulations 2018, introduced measures giving The Pensions Regulator powers to authorise and supervise master trusts with effect from 1 October 2018.

It also places additional governance duties on individuals involved with running master trust pension schemes. This includes a duty to report certain events to The Pensions Regulator which may indicate that the scheme cannot continue to operate.

Under the rules, master trusts must have fit and proper people running the operation, sufficient financial reserves, robust systems and adequate plans in place to get authorisation and operate in the market.

They will need to demonstrate to the regulator that they meet the required standards across five key areas:

  1. Fit and proper – all the people who have a significant role in running the scheme can demonstrate that they meet a standard of honesty, integrity and knowledge appropriate to their role.
  2. Systems and processes – IT systems enable the scheme to run properly and there are robust processes to administer and govern the scheme.
  3. Continuity strategy – there is a plan in place to protect members if something happens that may threaten the existence of the scheme, including how a master trust will be wound up.
  4. Scheme funder – any scheme funder supporting the scheme is a company (or other legal person) and meets the requirement that it only carries out master trust business.
  5. Financial sustainability – the scheme has the financial resources to cover running costs and also the cost of winding up the scheme if it fails, without impacting on members.

There will be a number of compliance issues for master trusts to ensure they meet the new reporting requirements under the 102-page Code of Practice, such as adapting existing business plans and financial forecasts to meet the new requirements of the Code of Practice and preparing a continuing strategy to ensure the master trust is sufficiently robust as this is an annual reporting requirement.

In many ways the process is prescriptive, says Tom Partridge, partner in Deloitte’s pensions advisory practice, adding that, as such, it is important to thoroughly follow the guidance and templates provided by TPR.

‘As some organisations will have experienced from The Pensions Regulator’s recent Readiness Review, the master trust authorisation application process poses a number of new challenges, even for the best-prepared organisations,’ said Partridge.

‘While most trusts anticipate a significant time frame to prepare their applications, some are yet to consider the additional resourcing required and different skill sets that will be essential in preparations. Most importantly, this includes expertise in project management, financial analysis and contingency strategy planning to meet the task at hand.’

The registration process is designed to give more protection to pension scheme holders.

Nicola Parish, executive director for frontline regulation at The Pensions Regulator, said: ‘We pushed for extra protections around this market and are pleased that the law has come into force today.

‘The success of automatic enrolment has led to rapid growth in master trusts. Authorisation and supervision is vital to ensure 10 million savers can have confidence that their retirement savings are safe.’

The latest TPR figures released today show that, so far, 30 master trusts have exited or are exiting the market, leaving 58 which will either need to apply for authorisation or exit in the coming months.

HMRC compliance with master trust rules

HMRC has updated its guidance on how to manage a registered pension scheme, adding specific information about reporting master trusts to the tax authority.

From 1 October, if there is any change to an existing registered pension scheme and the scheme structure changes to become a Master Trust, HMRC must be informed within 30 days on the APSS578 form.

The Master Trust has to apply for authorisation from The Pensions Regulator otherwise it will not be allowed to operate, and the same applies to existing Master Trusts, which must register with the regulator by April 2019.

HMRC will be able to de-register a scheme which is a Master Trust and does not receive, or loses its authorisation from The Pensions Regulator.

If a registered pension scheme is already a Master Trust on 1 October 2018, it will still have to apply for authorisation from The Pensions Regulator. The window for registering with the regulator runs from from 1 October 2018, closing on 1 April 2019.

If a Master Trust ceases to operate, HMRC must be informed within 30 days of the closure using the APSS578 form. You may also need to tell The Pensions Regulator. You can find more information on reporting events on The Pensions Regulator website.

HMRC will also be able to de-register a scheme which is a Master Trust and does not receive or loses its authorisation from The Pensions Regulator.

HMRC Guidance: Manage a registered pension scheme, reporting Master Trust status, updated 1 October 2018

Report by Sara White

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