Trustees of defined contribution (DC) master trusts should begin preparing for future scale requirements under the forthcoming Pension Schemes Bill, according to new guidance from the Pensions Regulator (TPR).
The regulator said schemes should start assessing their potential to grow, develop evidence-based projections and review whether their operations are ready for the changes expected under the legislation.
The statement follows the publication of a policy principles paper from the Department for Work and Pensions (DWP) and is intended to help reduce uncertainty while the details of the reforms are finalised.
Under the proposals, DC master trusts will need at least £25bn in assets under management in a main scale default arrangement by 2030. A transition pathway will be available for schemes that need more time to reach that level.
TPR said the master trust market continues to see strong growth and warned advisers and employers not to make assumptions about which schemes will or will not reach the threshold.
TPR said trustees should consider how their scheme could grow over time, including both organic growth and potential consolidation opportunities. It also said projections should be supported by evidence such as demographic trends, expected contribution flows and investment assumptions.
Trustees should also review whether their governance, systems and processes are capable of supporting a larger scheme as the market continues to consolidate. The regulator said investment capability and governance should also be considered alongside the wider reforms proposed in the Pension Schemes Bill and the potential impact on current and future members.
TPR added that employers and employee benefit consultants will play an important role in shaping market outcomes during the transition. It said those reviewing or selecting a master trust should take an evidence-based approach focused on member outcomes.
This should include looking at compliance with auto-enrolment duties, value for money, investment performance, service quality, governance and operational resilience, as well as the strength of administration and transition processes.
TPR executive director of strategy, policy and analysis Richard Knox says: “We want master trusts to consider their potential to grow, understand the evidence that may be needed in future, and assess their operational readiness for the changes proposed in the Bill.
“By preparing early, trustees can make informed decisions that support long-term value for their savers. Employers and advisers also have a vital role to play, and we encourage them to take a proportionate, balanced approach that focuses on what delivers the best outcomes for members.”
TPT policy Ruari Grant says: “The TPR scale guidance provides some much-needed clarity within the master trust market. Over the past year the scale test has begun to become a self-fulfilling prophecy, and we hope this will provide some reassurance to consultants and the wider market. For schemes pursuing the transition pathway, this guidance on credible growth plans should also help inform those crucial regulatory conversations in the years leading up to 2030.”
