Tough new regulations for master trusts proposed to boost consumer protection
The new Pension Schemes Bill has been published, delivering new pension regulations and strengthening existing legislation.
The new Pension Schemes Bill, published today, will deliver important new pension regulations for master trusts and strengthen existing legislation on exit charges.
Currently, there could be some members whose savings are at risk from master trusts which don’t meet minimum governance standards. The Bill will strengthen schemes by requiring them to meet higher operating criteria.
The Bill will also help boost consumer protection on a range of pension issues, including creating a new approval regime for master trusts and giving new powers to The Pensions Regulator to intervene where schemes are at risk of failing.
Speaking on the master trust proposals within the Bill, the Minister for Pensions, Richard Harrington said:
We are helping to create a culture of saving across the country and have delivered much needed change to our pension system to make saving easier, fairer and safer for all.
We want to make sure that people saving into master trusts enjoy the same protection as everyone else, which is why we are levelling-up that protection, to give these savers more confidence in their pension schemes.
Master trust schemes will be required to demonstrate that they meet 5 key criteria:
- persons involved in the scheme are fit and proper
- that the scheme is financially sustainable
- that the scheme funder meets certain requirements in order to provide assurance about their financial situation
- systems and processes requirements, relating to the governance and administration of the scheme are sufficient
- that the scheme has an adequate continuity strategy
The Chief Executive of The Pensions Regulator, Lesley Titcomb, welcomed the news, and said:
We are very pleased that the Pension Scheme Bill will drive up standards and give us tough new supervisory powers to authorise and de-authorise master trusts according to strict criteria, ensuring members are better protected and ultimately receive the benefits they expect.
The Bill will also make a necessary change in relation to the existing legislation on charges, helping to introduce a cap to prevent early exit charges from creating a barrier for members of occupational pension schemes wanting to access their pension savings.
The government wants to ensure that people accessing their pension freedoms can do so without being unnecessarily penalised by early exit fees.
The Minister said:
Pension freedoms have been a major success and I want people to have real choice over how they use their hard-earned savings.
The Bill makes certain key requirements on master trusts and provides additional powers for The Pension Regulator where a master trust experiences certain key risk events – such as the scheme funder deciding to withdraw from its relationship with the scheme. These are to support continuity of savings for members, to protect members where a scheme is to wind up or close, and to support employers in continuing to fulfil their automatic enrolment duties.
Master trusts can offer great value for members and employers and they offer a number of advantages, such as scale, good governance and value for members.
We estimate that around 10 million workers will either be newly saving or saving more into a workplace pension by 2018, generating around £17 billion in additional pension saving by 2020.
The pension freedoms, which came into effect on 6 April 2015, allow people to access their pensions savings more flexibly. In its first year the pension reforms saw over £3.5 billion flexibly accessed through nearly 400,000 payments.
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