The pensions of more than six million workers who pay into pension schemes held under master trust will attract greater attention under the Pension Schemes Bill (the Bill)[1] which was published last week. The Bill, which had its first reading in the House of Lords on 19 October 2016, introduces greater regulation and scrutiny of master trusts, as well as providing for a cap on early exit charges and the creation of a new pensions guidance body.

Master trust regulation

Master trusts are multi-employer pension schemes often provided by external organisations and frequently used for auto-enrolment. Despite their increasing popularity there have been growing concerns in the industry about the long-term sustainability of some master trusts. In particular, concerns have been raised over the potential negative impact that the disorderly wind-up of a master trust would have on affected savers and, more generally, public confidence in auto-enrolment.

The Bill aims to address these concerns by the introduction of strict new criteria which master trusts will need to demonstrate that they meet coupled with new powers given to the Pensions Regulator (the Regulator).

Once the Bill is enacted, master trusts will need to be authorised by the Regulator, which will publish a list of authorised master trusts[2]. Master trusts will be required to demonstrate to the Regulator (both at the time of application and on an ongoing basis) that they meet the following five criteria:

  1. persons involved in the master trust are fit and proper;
  2. the master trust is financially sustainable;
  3. the master trust provider meets certain requirements in order to provide assurance about their financial situation;
  4. the master trust has adequate governance and administration processes; and
  5. the master trust has an adequate ‘continuity strategy’ which must set out measures designed to protect members’ interests on the occurrence of specified trigger events, for example the insolvency of the provider.

It is anticipated that further detail in relation to each of the criteria will be delivered through secondary regulations in 2017.

Under the Bill, the Regulator has the power to de-authorise mater trusts who do not meet the authorisation criteria. The new measures have been welcomed by the Regulator who has described the Bill as a ‘game changer’ for master trusts which it views as “the lynchpin of the development of a stable and safe occupational DC schemes’ market.”[3]

Exit fees

The Bill also aims to create a system that enables consumers to access pension freedoms without unreasonable barriers. To this end, the Bill begins the process of introducing a cap on early exit fees charged by trust-based occupational pension schemes. However, the Bill does not specify the level of the cap at this stage.

Merging of financial advice bodies

Finally, the Bill also provides for the merger of the Pensions Advisory Service, Pensions Wise and the pension services offered by the Money Advice Service into a single body which will provide access to a straightforward private pensions guidance service for customers.

A new financial advice body will also be created to replace the Money Advice Service charged with identifying gaps in the financial guidance market to ensure consumers can access high quality debt and money guidance.

This post was edited by Becky Ryding. For more information, email 

[1] Pension Schemes Bill [HL] 2016-17

[2] Transitional provisions will apply to master trusts operating before the Bill is in force.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.