Should you trust master trusts?

The Pensions Regulator is looking to tighten the rules on one form of company pension scheme, amid rising concerns that it doesn't offer sufficient protection for scheme members in the event that the provider becomes insolvent.

"Master trust" pension schemes involve a single provider running a centralised fund for employees at several different companies. This lets firms pool their pension obligations, reducing costs. The master trust structure dates back to the 1950s. In recent decades firms have tended to use contract schemes, under which an insurance company took responsibility for running a pension arrangement for a single company.

But master trusts have returned to favour in the last few years as auto-enrollment brings more smaller employers into the fold. Of those 4.7 million staff in schemes that are being used for auto-enrollment, some 80% are in master trusts. However, master trust schemes are not subject to the same solvency requirements as the insurers that back contract schemes, raising questions about whether they offer adequate security.

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The regulator operates a voluntary standards scheme for master trusts, called the master trust assurance framework (MAF). However, out of 70 or more master trusts arrangements in the UK, just five have been validated under the framework and are open to smaller employers, according to Professional Pensions (another three are accredited but not open to smaller employers).

This had already led to calls for MAF membership to be made mandatory. Now the Pensions Regulator says it is asking the government to tighten the rules, amid industry concerns of a flood of low-quality providers entering the business to take advantage of the opportunities presented by the auto-enrollment rules.

Campaigners this week succeeded in forcing a government debate over the changes to the state pension age that will leave many women waiting longer for their pensions, after securing 140,000 signatures on an online petition.

The government has been heavily criticised over delays in informing women who will be affected by the changes (see here). MP Helen Jones called the delay "a gross dereliction of duty on the part of the Department for Work and Pensions".