Master trust code of practice published for consultation

The draft sets out the evidence that master trusts must be able to provide to TPR to demonstrate that they meet the five authorisation criteria established by the new regime. TPR will be responsible for authorising master trusts under the new regime, as well as for their ongoing supervision.

Pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, said that the draft would "help master trusts finalise any submissions to the regulator for a readiness review", although he warned that time was now running out for trusts to prepare for the new regime.

"Since the consultation on the draft code closes on 8 May, there will be some rough edges around those readiness review submissions," he said. "However, the best way to polish up any submission to the regulator is to hark back to the policy objectives and member interests."

"The detail of the finalised code, and associated guidance, will then have to be borne in mind along with any feedback from the readiness review process," he said.

TPR has set out its intention to "work closely" with master trusts seeking authorisation under the new regime to ensure that they are aware of all the requirements they must demonstrate to meet the authorisation criteria. The decision to authorise new master trusts will be made by the executive arm of TPR, while decisions relating to existing master trusts will be made by the regulator's independent determinations panel.

Master trusts enable pension scheme providers to manage a defined contribution (DC) scheme for several, unrelated employers under a single trust arrangement. More than half of people who have been automatically enrolled into a workplace pension scheme by their employer are saving into a master trust scheme, which now account for £16 billion worth of savings from nearly 10 million people, according to TPR.

Created by the 2017 Pension Schemes Act, the new authorisation and supervision regime was designed to provide members of master trust schemes with the equivalent protections as members of group personal pension schemes, which are regulated by the Financial Conduct Authority (FCA). Existing master trusts will have six months from entry into force of the new regime in which to apply for authorisation. Those that do not apply, or which are refused authorisation, will be required to wind up and exit the market.

To be authorised, master trusts will have to demonstrate that they meet five criteria: they must be financially sustainable; have sufficient administrative and governance arrangements in place; be run by fit and proper persons; have adequate continuity arrangements in place in the event of financial difficulties; and have scheme funders that meet specific requirements. Schemes must be able to demonstrate to TPR that they meet these criteria on an ongoing basis.

The draft code of practice is a "significant departure" for the regulator, as it has never previously directly authorised or supervised particular pension schemes. It has therefore asked consultation respondents for feedback on whether the code provides them with sufficient clarity about the practical elements of the new regime. It is also seeking views on what should be included in separate guidance which it intends to publish to accompany the code and the new regime.

TPR's acting director of regulatory policy, Anthony Raymond, said that the code was "another important step towards establishing and market with stronger safeguards and which pension savers can have confidence in".

"We are being clear about our expectations of master trusts and will not authorise schemes which fail to meet the necessary standards, both in applications for authorisation and during supervision," he said.

"If an existing master trust chooses not to apply for authorisation or does not meet the authorisation criteria it will have to wind up and exit the market. New master trust schemes have to be authorised before they can begin to operate in the market," he said.