Regulator warns of ‘master trust’ pension scheme risks

Thousands of workers who have been encouraged by the government to take out pension plans could be at risk of losing their savings, according to Pensions Regulator.

The news follows fears that dozens of companies providing auto enrolment pensions are too small to survive. Independent experts claim the problem could affect up to a quarter of a million people a year who are putting their savings into so-called ‘master trust’ pensions.

Such schemes are popular with the 1.8 million small employers with fewer than 30 staff who are currently signing up under the auto enrolment programme.

According to Andrew Warwick Thompson, executive director for regulatory policy at the Pensions Regulator there is a risk of these schemes falling over and members may lose their money.

However, he offered reassurance saying that scheme assets invested through asset managers regulated by the Financial Conduct Authority (FCA) would be safe.

The regulator also raised concerns about some of those in charge of such pension schemes. Some of the small pension providers “may not be run by competent people”, said Mr Warwick Thompson. Even where directors are qualified, providers do not always make it clear where the savings are invested, or who owns the schemes.

Unlike big pension providers, known as contract-based schemes, master trusts are not regulated by the FCA. Instead they are overseen by The Pensions Regulator (TPR), which provides a much lower level of supervision.

Those whose savings are invested with mainstream City firms have much higher levels of protection, thanks to FCA regulation. Such savings are also protected under the Financial Services Compensation Scheme (FSCS), although only up to a limit of £50,000. Companies with more than 50 employees are currently excluded from this. However the FCA is consulting on whether FSCS protection should now be extended to larger companies.

The Treasury has now said it is looking at whether supervision of master trusts should be beefed up. It is considering whether there should be an approved list of providers – what it calls a “whitelist”- to make choosing a pension company easier, with such a move likely to be welcomed by the Pension Regulator.

Moore Thompson is able to provide expert advice and support to help you navigate the pitfalls of workplace pensions. For more information please contact us.