Clause 10 requires the scheme strategist of a master trust to prepare and maintain a scheme business plan as part of the financial sustainability criterion that I mentioned. Through the business plan, the regulator will be able to monitor the adequacy of the financial resources available to the scheme. The plan is submitted to the Pensions Regulator with the application for authorisation, and is thereafter reviewed and, if appropriate, revised annually and following any significant change, in agreement with the key parties involved in operating the scheme. The clause also contains a power that enables the Secretary of State to prescribe further detailed requirements in regulations.
The scheme strategist is the person responsible for making business decisions relating to the commercial activities of the scheme and is therefore best placed, we believe, to prepare and maintain the business plan. In some cases, they may also be the scheme funder or a trustee. The scheme’s future viability may depend on its success in competing with other providers. In the early days, as with the setting up of a business, it is likely to pay out more in expenses than it generates in income, so it needs to plan how it will meet those costs and satisfy the regulator.
The business plan will help mitigate the risk of a master trust failing because of inadequate financing or planning. It will be one of the main sources of information on which the regulator will base its assessment of the scheme’s financial sustainability. For instance, it will provide key information on the reasonableness of the assumptions underpinning the scheme’s business strategy; the adequacy of the financial resources available; and the adequacy and security of the financial resources required to cover the costs that would arise in the event of scheme failure, such as winding-up costs and the cost of securing the transfer of members to another scheme without increasing the administration charge to members.
The detailed requirements will be set out in secondary legislation. That will enable the Secretary of State to consult the regulator and other key stakeholders to ensure that the business plan contains relevant information and also builds on best practice. The plan and any supporting information or documents must be submitted by the scheme strategists together with the application for authorisation and, thereafter, within three months of any revisions or changes and at the regulator’s request. Many master trusts have business plans in place to provide that kind of information. They are intended to support risk-focused financial supervision, so that the regulator can identify and intervene in schemes that are at risk as a result of inadequate financial planning. I urge that clause 10 should stand part of the Bill.