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The purpose of the regulatory system we are introducing in the Bill is precisely to ensure that there are checks and balances to avoid some of the problems we have seen in traditional schemes. My hon. Friend may be aware that we are about to produce a wider consultation on defined benefit schemes, so some of the problems he rightly identifies will be addressed in that consultation.
There has been very fast growth in the use of master trust schemes. In 2010, there were about 200,000 members in master trust schemes in the UK. By December 2016, there were over 7 million members, and £10 billion of assets in 87 master trusts. The schemes are regulated by the Pensions Regulator in accordance with occupational pensions legislation, but that legislation was developed mainly with single employer pension schemes in mind. The master trust schemes have different structures and dynamics, which give rise to different risks. We have worked closely with the Pensions Regulator and engaged with other stakeholders to see what essential protections are needed. We believe that the measures in the Bill, while proportionate to the risks, will provide those protections.
The Bill introduces a new authorisation regime for master trusts. Under the new regime, the trusts will have to satisfy the regulator that they meet certain criteria before operating, or achieve those criteria if they are already operating. The criteria have been developed in discussion with the industry, and they include the same kind of risks that the Financial Conduct Authority regulation addresses in relation to group personal pensions, with which master trust schemes have some similarities.
Master trusts will now be required to demonstrate five things: that the persons involved in the scheme are fit and proper; that the scheme has financial sustainability; that the scheme funder meets certain requirements; that the systems and processes relating to the governance and administration of the scheme are sufficient to ensure that it is run effectively; and that the scheme has an adequate continuity strategy. The Bill sets out these criteria so that it is clear to master trusts and other stakeholders what the new regime will entail. Schemes will have to continue to meet the criteria to remain authorised. The regulator will also be given new powers to supervise master trusts, enabling it to intervene where schemes are at risk of falling below the required standards.
The Bill also places certain key requirements on master trusts and provides additional powers for the regulator where a master trust experiences key risk events, such as the scheme funder deciding to withdraw from its relationship with the scheme. The Bill requires a scheme that has experienced such an event to resolve the issue or to close. This requirement, along with the regulator’s new powers, supports continuity of savings for members, protects members where a scheme is to wind up or close, and supports employers in continuing to fulfil their automatic enrolment duties.
On the introduction of the Bill in the other place, the Pensions Regulator said:
“We are very pleased that the Pension Schemes Bill will drive up standards and give us tough new supervisory powers…ensuring members are better protected and ultimately receive the benefits they expect.”
In welcoming the Bill, the Pensions and Lifetime Savings Association commented that
“tighter regulation of master trusts is essential to protect savers and ensure that only good master trusts operate in the market”.
It went on:
“This is an important Bill that will provide the appropriate safeguards for the millions of people now saving for their retirement through master trusts.”
As I have said, we continue to engage with stakeholders on aspects of the detail to be made in regulations. We anticipate the initial consultation to inform the regulations will take place in the autumn, and it will be followed by a formal consultation on the draft regulations. Our intention is to lay the regulations during the summer of 2018, and the authorisation and supervision regime is likely to be commenced in full that year.
However, the Bill also contains provisions that, on enactment, will have effect back to
The Bill makes a necessary change in relation to the existing legislation on charges. We are keen to remove some of the barriers that might prevent people from accessing pension freedoms.