1. The people involved in the scheme must be fit and proper
Concerns have been raised by many people that some smaller master trusts ‘may not be run by competent people’. This potentially puts members’ savings in these master trusts at greater risk. The bill aims to address this by placing a duty on The Pensions Regulator to approve each person involved in the master trust as fit and proper.
2. The scheme is financially sustainable
3. The scheme funder must be a separate legal entity and provide assurances about its financial position
Activities will be restricted to those directly related to the scheme and will provide certain financial assurances. This will provide members with greater protection. The resources and finances of the entity can’t be diverted for other business purposes of the scheme funder.
4. The scheme must have adequate systems and processes in place to ensure that it is run effectively
Governance and administration lie at the heart of delivering good member outcomes. Although most master trusts are well run, those that are not may be placing members’ savings at risk. The bill will require master trusts to put effective systems and controls in place to prevent this from happening. These are standard in contract-based arrangements.
5. The scheme has an adequate continuity strategy
Members should not be left to pick up the costs of a failing master trust. The bill will require master trusts to have a continuity strategy. This should detail how members’ interests are protected in the event of a trigger incident. Such costs should therefore not fall on members. On contract-based arrangements, members’ interests are protected on the failing of a provider through the Financial Services Compensation Scheme (FSCS).
The bill also gives The Pensions Regulator new powers to intervene where a master trust risks failing to meet these criteria.