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Master trusts: A word in their support

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17th Mar 2016
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Last month master trusts came under some severe scrutiny. This has lead to uncertainty in the auto enrolment world, not least among the small businesses that are set to reach their staging date over the next 18 months, says Peter Walker of Smart Pension.

While it’s vital to ensure you’re pointing your small business clients towards a good, reliable pension provider, the very fact that it’s a master trust should not trigger alarm bells. Far from it. NEST, the government’s own scheme is a master trust – and the majority of auto enrolment will have been done via master trusts by the time the final staging has been completed in 2018.

What is a master trust?

Master trusts have been around for decades and were set up for entirely sensible reasons. They are a cost-effective way for firms to have an independently-governed pension pot, overseen by experienced trustees, without the cost of setting up an individual trust. Companies make contributions through the master trust and their employees’ money is ring fenced into separate accounts. The law places a heavy burden on the trustees of these trusts to be appropriately qualified and to have years of experience.

How are they regulated?

The government-appointed Pensions Regulator (TPR) is responsible for regulating master trusts. Also a new, and so-far voluntary, accreditation scheme called the Master Trust Assurance Framework (MAF) is now regarded as the gold standard. Not all providers have this yet, but the most robust ones will over the next few months. 

Most master trusts will invest funds via authorised financial services firms that are overseen and protected by the Financial Conduct Authority (FCA). A good Defaqto rating means their system has been independently audited.

The market

The next year in auto enrolment will be critical and we will see a shake down. Already some larger providers have priced themselves out of the market for the small and micro business community. TPR has stated it only expects to see 10 providers catering for this market in the long run.

 

Peter Walker is COO at Smart Pension and former COO at the Pension Protection Fund.

AccountingWEB has launched the No-one gets left behind campaign to alert as many accountants as possible to the obligations implied by auto enrolment. Read our simple eight-point statement which sets out the auto enrolment facts you need to know.

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By SteveB@LPAES
18th Mar 2016 10:28

No need for alarm bells....

There is nothing wrong with selecting a well run well financed Master Trust.

The sad news is there are precious few of them about. How many of the 70-80 schemes listed on the ABI/NAPF sites are actually well run and well financed? Many will go by the wayside as you suggest in your article Peter, SMART know this because they already contain two such master trusts within their own stable.

How many people know the difference between the way that a Master Trust is funded compared to a contract based pension scheme? Is this important...hell yes!

Tax relief is important to all who can claim it as well and how many schemes only offer Net pay as this is the way that Master Trusts traditionally grant tax relief. NOW:Pensions have just announced that they will pay any lost tax relief from their own pocket as they accept that lower earners have lost out because of this Net pay basis and this is fantastic news in my view.

How many people know the difference between Net pay and Relief at Source? Is it important...hell yes!

Master Trusts are not bad nor should they be vilified but by the same token people involved in dealing with them should understand what they are recommending for their clients and why.

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By Henry Tapper
29th Mar 2016 15:47

Need for more transparency

Capital adequacy is a key issue. L&G' CEO Nigel Wilson was quoted last week criticising the over zealous EU solvency II regulations that tie up capital within the insurance sector. His argument - you can have too much of a good thing.

Occupational schemes (of which master trusts are one species) are not subject to Solvency II and have no capital adequacy requirements whatsoever. You can have too little of a good thing

The master trust assurance framework does not address capital adequacy. There are a lot of master trusts who are currently "winging it" and our risk based Pensions Regulator knows it

And...

The most famous Master Trust NEST is currently trading insolvently but is supported by a £400m + loan (max drawdown £600m from the tax-payer. The NAO is looking to shorten the loan payback period and we wait to see how this will be achieved!

 

 

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