Advertisement

A big trim for master-trust pension schemes

More than one in four master-trust pension schemes – which look after the retirement savings of millions of savers – are set to close.

914_MW_P31_pensions_top
Master trusts evolved out of pension schemes for hairdressers and builders

One in four of these pension schemes will close due to tougher regulations.

More than one in four master-trust pension schemes which collectively look after the retirement savings of millions of savers are set to close, according to The Pensions Regulator (TPR), the workplace pensions watchdog. The closures are the result of new regulations coming in over the next six months that are intended to reduce the risks of the schemes.

Advertisement - Article continues below

Master trusts have evolved out of occupational pension schemes that were originally set up to provide pensions for people working for many different employers in industries such as hairdressing and building. Such schemes had only 200,000 members a decade ago, but the structure has become hugely popular since the launch of the auto-enrolment system, which requires all employers to offer their staff access to a pension scheme. Joining a master-trust scheme is a more straightforward option for many employers than setting up their own plan. However, there has been growing concern about standards in the sector.

Some master trusts are too small to be economically viable, while in other cases there have been claims of malpractice. In addition, savers with money invested in master trusts aren't automatically protected by the Financial Services Compensation Scheme so if a scheme were to go bust, their money could be at risk.

Consequently, TPR is introducing an authorisation system, with master trusts required to meet minimum standards in order to continue operating. The rules, which take effect from October, will require master trusts to maintain minimum amounts of capital and to set out coherent investment policies that do not expose members to undue risk.

Of more than 80 master trusts in operation, 24 have already said they will close rather than seek to meet the new standards, says TPR.The watchdog is working with these schemes to ensure savers' accounts are transferred to new providers with no disadvantage. But the news that so many master trusts do not feel able to operate under stricter regulation will concern savers whose money is invested this way. In all, master trusts are now thought to look after the savings of ten million members of workplace pension schemes, managing around £16bn of investments.

Many master-trust members may not even realise they are covered by such an arrangement. And while it is possible to transfer savings already built up to a different type of scheme, employees have no say in the type of arrangement their employers use on an ongoing basis.

Advertisement
Advertisement

Recommended

Companies cut back on their pensions bills
Personal finance

Companies cut back on their pensions bills

Britvic is the latest firm hoping a cheaper inflation index will cut pension costs. David Prosser reports.
28 Aug 2019
Covid-19 sees a surge in early retirement
Pensions

Covid-19 sees a surge in early retirement

The number of people taking early retirement has risen by more than ever before, says the ONS – in part because of problems in the labour market cause…
7 Aug 2020
We're all going to have to be a lot more flexible
UK Economy

We're all going to have to be a lot more flexible

As the world gets older, we'll all have to retire later and finance it for longer. That's going to take a major rethink about an awful lot of things, …
6 Aug 2020
Don’t be tempted to transfer out of your final salary pension scheme
Pensions

Don’t be tempted to transfer out of your final salary pension scheme

Switching out of final-salary schemes is very rarely a good idea, no matter how much money is on offer
29 Jul 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020