Are the authorised master trusts ready for TPR’s supervisory regime? Part 1 of 3

November 21, 2019

by Fan Jia Senior Associate

Email +44 (0)7419 538420

Out of the 90+ Master Trusts (MTs) that were in the market, 37 have been authorised by The Pension Regulator. Many of these attended the Regulator’s Supervision event on Monday, marking the end of a rigorous process which more than halved the number of players in the market in less than two years.

Representatives of the successful MTs looked back at the challenges they overcame to establish themselves in the new market and achieve authorisation. They most likely also thought about what challenges they are still to face in the future. As the market continues to grow rapidly, there is potential for more consolidation. MTs will also be applying greater focus on how they provide and differentiate their member offering. As the number of MTs in market has reduced it will become easier for customers to identify those MTs that provide the qualities they are looking for, and inevitably this will increase competition.

The authorisation criteria have proven demanding for many. However, the need for stringent authorisation criteria was largely driven by the fact that the market now looks after £36bn of the life savings of 16m members across the UK. It is now up to TPR’s supervisory regime to ensure that the high standard set by authorisation is upheld on an ongoing basis.

MTs will find out by the end of the year the level of detail and frequency of information that they will need to provide to TPR under the supervisory regime. Now the question is: are the MTs ready? Reflecting on what we have seen in the authorisation process, we set out in a series of blogs some of the challenges to come.

 

Building a business plan is hard, but sticking to it could be harder

The requirement of having a detailed business plan with milestones and objectives, and a clear contingency plan if forecasts are not met, may have caught some MTs off guard. After all, with the positive market conditions, MTs were growing at a rapid rate and gathering considerable momentum.

Driven by the auto-enrolment (AE) requirements starting in 2012, many workers who had previously never saved into a pension pot are now putting money aside for their retirement. MTs have become a popular vehicle for this purpose due to the attractive governance, customer focussed offering and low costs they offer to employers. Statutory contribution rates have grown fourfold in just over a year to 8% in April 2019, generating extra revenue for MTs who charge a percentage fee on the pots invested with them. The rapid growth across most, if not all MTs has, to an extent, masked the need to identify and plan for the obstacles further down the road.

Now that all eligible employers have enrolled with an AE provider, and no planned AE rate increase has been announced beyond April 2019, MTs need to reconsider how the pace and shape of their growth will change and whether it can be sustained at the same pace. Such questions may not have been a key area of focus when MTs were experiencing a rapidly expanding market, but careful consideration of these issues is now required by the authorisation criteria. Indeed, not only were difficult questions asked, management’s answers to these questions were also subject to scrutiny by the trustees of the MT. How involved trustees are in the business planning process will help shape the future direction of the MTs .

From this perspective, the authorisation process has undoubtedly challenged MTs to rethink their business model and their future strategy. Those who are authorised have satisfied TPR that their business plan is credible and backed by adequate resources. However, given that many of these business plans were produced over an accelerated timeline in recent months, the real challenge is to ensure that they are well maintained, evolve and weren't just a paper exercise.

 

by Fan Jia Senior Associate

Email +44 (0)7419 538420

by Michael Stevens Senior Manager

Email +44 (0)7808 105574

by Minesh Rana Director, Pensions Credit Advisory

Email +44 (0)7739 874622