11 December 2017

Existing master trust schemes, as well as new ones, will need authorisation from the Pensions Regulator in order to operate from April 2019.

More detail on the Regulator’s authorisation and supervision regime is available now the DWP has issued a consultation paper and draft regulations.

Applications for authorisation can be made from October 2018.

Master trust schemes will be assessed for authorisation on five tests:

  1. The people involved are fit and proper, looking at:
    • honesty and propriety
    • conduct
    • competency: are the trustees’ and scheme strategists’ individual knowledge, experience and qualifications sufficient?
  2. The scheme is financially sustainable.
  3. Each scheme funder meets requirements about their financial situation (including through a business strategy and full, audited accounts). A “scheme funder” is a person who is either liable to fund a master trust scheme where charges on members do not cover costs or is entitled to scheme profits. There is no express requirement for a scheme funder but most master trust schemes are expected to have one or more.
  4. Administrative and governance systems and processes are sufficient.
  5. The scheme has an adequate continuity strategy.

A master trust scheme without authorisation will be required to wind up.

Master trust scheme definition

The definition of an master trust scheme is deliberately wide because of the need to bring a wide variety of scheme structures within the authorisation regime.

Briefly, a master trust scheme is an occupational pension scheme in the private sector that is used by two or more unconnected employers to provide money purchase benefits (either alone or with other types of benefit).

However, the government accepts that the definition may catch schemes that are not vulnerable to the risks master trust schemes face. Those risks include the size and scope of master trust schemes (the consultation paper notes 7 million members and assets of £10 billion) and the lack of employer engagement.

Excluding certain schemes

Hence proposals to exclude:

  • DB schemes only offering money purchase benefits linked to AVCs and transfers-in by active DB members
  • cases where, following corporate restructuring, scheme members remain temporarily in their original pension scheme while employed by an outside employer
  • schemes originally set up as exclusively DB on the privatisation of a state owned industry and confined to those employed at the time
  • small self-administered schemes (SSASs) where the majority of trustees are members
  • schemes intended to be used only by a single member.

Third sector

On the other hand, no exception is made for the atypical structures that can be found in the charitable, faith and educational sectors and others. The government reasserts its intention that not for profit and industry wide schemes should be within the master trust scheme definition.

Mixed benefits

Where a scheme provides mixed benefits, like DB and money purchase, the authorisation regime will only apply to the money purchase aspects.

Modified regime

Modified application of the authorisation regime is proposed in some cases. For example, a multi-employer scheme offering both DB and money purchase benefits where the only scheme funders are the participating employers. Such a scheme will still need authorisation and will have to satisfy the Regulator over fit and proper persons, appropriate systems and processes, and financial sustainability. But certain requirements on scheme funders in a master trust scheme will not apply.

Code of practice

The Regulator will support schemes with operational guidance and a Code of Practice to assist with the authorisation process. The code will be subject to a separate public consultation that is not expected to start before February 2018.

Application and fees

There will be a fee for authorisation. The proposal for new master trust schemes is up to £24,000 and for an existing master trust schemes up to £67,000 (on the basis that authorisation is expected to take more work).

Other proposals

Other proposals will bring within the authorisation regime structures that do not satisfy the definition of a master trust scheme:

  • Cluster schemes: multiple schemes are set up, each with a single employer or a connected group of employers, but in fact subject to common rules or common control.
  • Parallel accumulation and decumulation schemes: a scheme is set up to provide retirement options for members of a master trust scheme subject to common rules or common control.


Part of the regime is already in force. It relates to “triggering events” that may signal financial or governance concerns with a scheme. The trustees and others have obligations to notify the Regulator and to respond to events. Existing master trust schemes and related organisations should monitor events.

Schemes within the scope of the authorisation regime will welcome the further information now available but will note that achieving authorisation will be a significant process and time is tight.

For non-commercial schemes with hybrid benefits in particular, there remains further work to do in liaison with the Regulator to understand how to demonstrate financial sustainability in the particular context of each scheme.

It is likely that large commercial schemes backed by FCA-regulated entities will find it easiest to comply and that the cost of the process will be significant for smaller master trust schemes of all types.

Schemes that primarily offer DB with money purchase benefits related to AVCs and transfers-in will be relieved that they will be excluded from the authorisation requirement. It remains uncertain what constitutes pure “AVCs” in this context.

The closing date for the consultation is 12 January 2018. Schemes and employers within the scope of the legislation should consider responding.

The Regulator continues to engage with atypical and non-commercial schemes that it knows about.

Key contact

Alice Honeywill

Alice Honeywill Partner

  • Pensions Services
  • Public Sector Pension Schemes
  • Life and Pensions

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