In an earlier post I wrote about how pension master trusts could be set up without regulatory approval, leading to a very mixed standard of available workplace pensions. This made it hard for small businesses to know who to trust with their employees’ retirement savings. Since then, the situation has moved on and Parliament has created new powers to tackle the problem.
MPs were debating this legislation on 22nd March when the Palace of Westminster was attacked, interrupting proceedings. Parliament continued with its business the next day and the Pension Schemes Act has now completed its passage and received royal assent. Once a commencement date is set, the act will give The Pensions Regulator the power to regulate this type of pension scheme in England, Wales and Scotland. Most of the workplace pension schemes used by small businesses are master trusts. The other common workplace pensions are contract-based schemes, which come under different regulator, the Financial Conduct Authority.
The Pension Schemes Act has 45 sections and 3 schedules including section 3, paragraph 1, which says “A person may not operate a Master Trust scheme unless the scheme is authorised.” Before this, the pension scheme just had to be registered with HMRC, who assumed the pension administrator was a fit and proper person unless they had information to the contrary. Any Tom, Dick or Harry could set up a master trust scheme, sell the idea to employers and accept pension contributions out of the wages of staff who were automatically enrolled. What made this particularly dangerous was the low level of engagement in the decision – staff get no choice of scheme and many employers are focussed on the easiest and cheapest way to comply with the pesky law, rather than the safest place for their staff’s savings.
I expect the new rules will lead many small master trusts (i.e. pensions with few members) to close or be acquired by larger master trusts. One small master trust called My Workplace Pension was mentioned last year in a BBC article about the risks posed by small schemes. Now, a recent article in New Model Adviser reveals that My Workplace Pension is closing and transferring members’ money to Smart Pension. Smart Pension is also a master trust scheme, but in contrast to My Workplace Pension, it is a large scheme that has obtained Master Trust Assurance.
As a result of the Pension Schemes Act, small businesses can expect to have fewer options for their workplace pensions and they should also have more confidence in the remaining schemes.