Pensions minister Ros Altmann has hit out at automatic enrolment providers that levy a charge on members in the event of failure.
In recent weeks the Department for Work and Pensions and The Pensions Regulator have raised concerns over the low barriers to entry to the master trust market.
Unlike schemes run by insurers, there are no capital requirements for master trusts. Some providers have terms and conditions in place that mean money can be clawed back directly from members’ pension pots if the scheme is forced to wind up.
However, speaking to Money Marketing, Altmann says: “Whether or not it’s in the terms and conditions there is clearly a risk if schemes wind up.
“And it’s not a risk that I feel is acc-eptable to have in an auto-enrolment scheme. The DWP is not approving these schemes and TPR doesn’t have the power to stop such schemes.
“Obviously there are big master trusts that are secure but if you go with a smaller, newer one you need to very carefully check out what protection there is – if any – on wind-up.
“I do not want to see members and employers losing their pensions on wind-up. I spent too many years of my life battling against the impact of that and I cannot accept the current situation. Doing nothing is not an option.”
Winding-up costs are excluded from the 0.75 per cent charge cap on auto-enrolment default funds.
Master trust Now: Pensions chief executive Morten Nilsson confirms its members are protected in the event of a provider failure.
Cervello Financial Planning independent financial planner Richard Earl says: “The financial strength and sustainability of any master trust scheme is of the utmost importance to us.
“If the scheme failed, not only would there be the potential loss of valuable pension funds built up by the members but their employer, whom we have advised, would lay the blame for recommending that scheme at our door and this might culminate not only in a complaint but also in the breakdown of a relationship with a valuable corporate client.”