A new U.K. bill calling for increased regulation of multiple-employer defined contribution plans, known as master trusts, has been welcomed by the retirement industry.
The government published its Pension Schemes Bill on Thursday, following a hearing before the House of Lords on Wednesday.
The bill calls for stronger operating criteria for master trusts, with these plans required to show that they meet five key criteria: the people involved are “fit and proper”; the plan is financially sustainable; the funder of the plan meets certain requirements in order to provide assurance about their financial situation; the systems and processes relating to the governance and administration of the plans are sufficient; and the plan has an adequate continuity strategy.
The bill would also create a new approval regime for master trusts and would give new, increased powers to the U.K. Pensions Regulator to intervene when plan providers are at risk of failing.
Operators of master trusts in the U.K. broadly welcomed the bill. Darren Philp, director of policy and market engagement at master trust The People's Pension, West Sussex, England, said in an e-mail: “There are a lot of schemes in the market now, and it would be unrealistic to think they will all survive. There is now likely to be a period of market consolidation — and savers need to have their assets protected while this takes place.”
Speaking at the Pensions and Lifetime Savings Association's annual conference in Liverpool, England, panelists discussing automatic enrollment welcomed the bill, but they warned there will be a period of fallout as master trusts work out whether their operations remain viable under the bill. “I think the regulation is designed to flush out those master trusts that are not going to be capable of operating sensibly going forward,” said Emma Douglas, head of defined contribution at Legal & General Investment Management. The firm is the provider of a master trust.
Ms. Douglas said it is important that other master trusts are ready to take on participants whose existing providers might decide not to continue to operate under the new regulations.
Patrick Heath-Lay, CEO of The People's Pension, agreed at the same panel discussion that the retirement industry needs to come together, “hopefully in a panel format,” to support the work that needs to be done around the regulation. In some parts, working through the regulation will be “orderly,” but others might be more “labor intensive, and not economic to do.”
And Otto Thoresen, chairman of the National Employment Savings Trust, London, urged the government to use tools that have already been developed in the market by “quality master trusts” rather than “reinventing.”
The Pensions Regulator also needs to be given the resources necessary to carry out its role in the new bill, added Morten Nilsson, CEO of NOW: Pensions, London.