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Defined Contribution

U.K. Pensions Regulator ups funding requirements to run master trusts

The U.K. Pensions Regulator has doubled the funding requirement that master trusts will have to meet to continue to operate in the U.K. defined contribution market following the launch of new rules in October.

In efforts to weed out poorly run U.K. multiemployer plans — known as master trusts — and to protect savers, the regulator together with the Department for Work and Pensions designed new rules, facilitating consolidation into larger occupational DC structures.

Following a consultation with the industry, the U.K. regulator said it "recognized that the 75,000 minimum ($99,000) floor may not be sufficient" for every plan, according to a draft code of practice for the authorization and supervision of master trusts under the new rules.

The master trusts that will be granted authorization will have to have financial resources of up to 150,000 to cover both set up and running costs, and additional costs of complying with fiduciary duties.

"Taking account of the consultation responses, we have decided to revise the minimum amount up to 150,000, which we believe is a more prudential estimate of costs incurred by master trusts with less than 2,000 members," the TPR said.

The TPR wants to restrict companies in the U.K. market that aren't able to afford the new minimum costs of running the master trusts to ensure that plan participants are offered adequate plan governance and investment solutions. Smaller master trusts currently eligible to operate in the market spend the majority of their budgets on administration and only a fraction on investments.