The Pensions Regulator’s master trust supervision and enforcement policy

Pensions Regulator has set out how it will supervise master trusts and use its enforcement powers. We explain as the window for existing master trusts to apply for authorisation closes.

28 March 2019

On 1 October 2018, new laws came into force requiring every new and existing master trust to apply to the Pensions Regulator ('tPR') for authorisation or to exit the market.

Once authorised, a scheme will be subject to tPR’s on-going supervision. Existing master trusts must apply for authorisation before 1 April 2019. tPR is responsible for regulating master trusts.

tPR’s published supervision and enforcement policy sets out its approach to supervision and enforcement for authorised master trusts. The policy links to other policy documents developed by tPR including Code of Practice no. 13 which sets out the standards of conduct and practice that are expected from trustee boards of DC schemes, and Code of Practice no. 15 on the authorisation and supervision of master trusts. The policy takes into account the ‘tPR Future’ initiative which is leading to a more proactive oversight of pension schemes.

Supervision

Through supervision tPR will seek to remain satisfied that master trusts meet, and will continue to meet, the authorisation criteria set out in the Pension Schemes Act 2017 and 'the wider range of obligations to which they are subject', including under relevant legislation and codes of practice.

Principles for supervision

tPR has identified five key principles it will adopt in its supervision of master trusts. It will be:

  • engaged and responsive to issues faced by master trusts
  • proactive and forward looking in order to prevent member detriment
  • strategic and targeted
  • proportionate and risk based, and
  • consistent.

Supervision approach

The policy explains that tPR will take a risk-based approach to supervision. All master trusts will be supervised, but the intensity of supervision will vary depending on tPR’s assessment of the risks posed by individual master trusts.

In assessing the risk posed by a master trust tPR will take into account a wide variety of factors including the current and anticipated risks of the master trust, and industry and market developments. A master trust’s level of risk will be kept under review and new master trusts can 'expect to receive a higher intensity of supervision than those who are more established'.

Master trusts perceived as being higher risk will usually be asked to attend face-to-face meetings and those subject to the most intensive supervision will be subject to one-to-one supervision and allocated a named supervisor. All master trusts can expect periodic calls with tPR. Additionally all schemes will be expected to provide information to tPR which will be reviewed.

tPR’s Expectations

The policy sets out the Pensions Regulator’s expectations in respect of those responsible for running master trusts. These are to:

  • satisfy tPR that they continue to meet their obligations and there is a low risk of them failing to do so in the future
  • be proactive in identifying and monitoring risks, and rectifying any issues that may arise
  • be open, honest and transparent in interactions with tPR, and
  • volunteer information about material risks and issues in the master trust if they might affect the scheme’s ability to continue to meet the authorisation criteria and other obligations.

Enforcement

The policy sets out the range of enforcement powers tPR has in relation to master trusts. In deciding whether to exercise its enforcement powers tPR will take into account relevant aggravating and mitigating factors, including the potential impact of the master trust failing to meet its obligations, and the intention and behaviour of those involved in running the scheme.

The powers vary in severity. If tPR is no longer satisfied that a master trust continues to meet the authorisation criteria the Determinations Panel can decide to withdraw authorisation which will lead to the scheme being wound-up. tPR can also pursue criminal prosecutions if a person, without reasonable excuse, neglects or refuses to comply with a request for information or documents.

Less severe enforcement powers include penalty and improvement notices. tPR will usually issue a Fixed Penalty Notice (FPN) if it has not been provided with information following a statutory request. The FPN is for £500 and if the information is not provided within the specific time limit tPR will usually issue an escalating penalty notice (EPN) where penalties accrue at a daily rate, the first day’s rate is £1000.00, the rate for the tenth day and each subsequent day is £10,000.00.

To help master trusts avoid enforcement action using their enforcement powers, those involved in running master trusts should ensure that they interact with tPR in an open, honest and co-operative way.

Comment

The universe of master trusts is very diverse and it will be interesting to see how tPR implements its policies to cover large-scale commercial master trusts, cross-industry schemes, and smaller not for profit arrangements. Those interested in scheme consolidation for defined benefit schemes will watch closely as many of the same principles for authorisation and supervision are likely to apply to the regulatory regime developed for ‘consolidators’ (also known as ‘superfunds’).

The enhanced regulatory regime for DC master trusts is of importance to any employer or trustee considering transferring DC members to a master trust, as it should increase confidence in the market.

This article was written by Georgina Tyas.

Key contact

Alice Honeywill

Alice Honeywill Partner

  • Pensions Services
  • Pensions Regulatory
  • Public Sector Pension Schemes

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