The work and pensions select committee is piling the pressure on the Government to announce a Pensions Bill in the Queen’s Speech on Wednesday, with a report that calls for more safeguards against ‘unstable master trusts’.
A report on auto-enrolment published by the work and pensions select committee over the weekend argues that gaps in pension law and regulation have allowed ‘potentially unstable’ master trusts onto the market.
The committee also warns that the introduction of the Lifetime Isa, potentially seen as a competitor product, could jeopardise the success of auto-enrolment. The report says the Treasury and the Department for Work and Pensions ‘appear to have different views over whether it is a pension product or not’. The report warns some young people may opt-out of AE in order to save in a Lifetime Isa, leaving themselves worse off in retirement.
It also highlights a concern that the Lifetime Isa is due to be introduced at a time when the majority of small businesses will still be to move on to AE and statutory contribution rates will be yet to rise. It calls on the Government to make clear that the Lifetime Isa is not a pension and conduct urgent research on any effect of the Lifetime Isa on AE and report on this before the 2016 Autumn Statement.
The report warns that should a master trust collapse, there is a very real danger that ordinary scheme members could lose retirement savings. The committee also warns of a risk that faith in auto-enrolment as a whole will be undermined in the event of a master trust collapsing. The report says: “We support the Minister’s call for a Pensions Bill to introduce stronger regulation of master trusts. We recommend the Bill makes provision for The Pensions Regulator (TPR) to have power to enforce minimum financial and governance standards for market entry, ongoing requirements for master trust schemes, which might include making compliance with the master trust assurance framework mandatory; and measures to protect member assets in the event of a master trust winding up.”
The report repeats concerns expressed to the Chancellor in a letter from committee chairman Frank Field MP last week.
Speculation is growing that a Pensions Bill could also strengthen the regulatory structure surrounding DB schemes which has been shown to be lacking in clarity in the BHS case.
Hargreaves Lansdown head of retirement policy Tom McPhail says: “The UK’s workplace pensions sector is crying out for consolidation. There are tens of thousands of defined contribution schemes, thousands of final salary schemes and dozens of master trusts in the UK; this is a lot too many.
Looking after individuals’ retirement savings is a responsibility which demands robust safeguards and controls. The process of setting up and running some types of pension scheme, such as master trusts is very light, with relatively little scrutiny of the individuals involved or the financial resources standing behind them. Recent high profile final salary scheme problems illustrate that the governance of workplace pensions generally is in need of review.
“This would be an opportune moment to raise the bar on workplace pension standards generally and to reassure the public that their retirement savings are in safe hands.”
Royal London director of policy Steve Webb says: “The Committee report rightly shows the danger of snatching defeat from the jaws of victory when it comes to automatic enrolment. This successful programme must not be de-railed by allowing people to be enrolled into poorly regulated MasterTrusts, nor by letting younger pension savers be distracted into opting out of pensions into Lifetime ISAs. The Government must commission research as a matter of urgency into the effect on pension saving of Lifetime ISAs and review its policy in the light of that research.