Auto enrolment might be a government-led enterprise, but the maxim of buyer beware remains relevant when selecting a workplace pension.
“There’s a definite difference in quality,” explains Henry Tapper of Pension PlayPen, a pension advisor. “The big master trusts that have experience, have established processes, strong governance - are doing really well. They typically have got the master trust assurance framework and are excelling in The Pension Regulator’s (TPR) new DC code.”
TPR’s DC code, as the regulator explains on its website, “sets out the standards of conduct and practice that we expect trustee boards of occupational pension schemes providing money purchase benefits to meet to comply with their legal duties”.
This code operates in tandem with the master trust assurance (MTA) framework, which was developed by the ICAEW in partnership with TPR. The MTA sets out how trustees can certify that a master trust has processes in place that demonstrate good governance standards.
Critically, adherence to the assurance framework is not mandatory - that may change, however - and currently TPR says that it “expects” all trusts to “obtain independent master trust assurance”. TPR has a list of master trusts who meet set criteria and have been independently reviewed available on its website.
The most stable trusts, explains Tapper, already adhere to these codes. “There’s no problem with these high quality, large master trusts,” says Tapper. “They are properly capitalised and have strong backing. That’s the top end of the market. We’re very comfortable with that.”
There’s no problem with these high quality, large master trusts.”
Below these established trusts, Tapper explains there are what he classifies as two strata of master trusts. “In the middle of the market are a number of aspiring master trusts. With these organisations we have slightly less confidence, they are young, their business plans are in place, but they’re not there yet.”
It’s the trusts below these aspirational trusts that Tapper is concerned about. “These trusts are run by all kinds of organisations - some of which are pretty much one man bands - and these we’re not so confident about.”
“They don’t have the master trust assurance framework, they don’t have solid business plans and we think that a lot of them are simply trying to gather some assets on the quick. And they’re chancing it, really.”
The trusts aren’t inherently stable and there have been some failures. “Some master trusts or occupational trusts marketed into the AE market, are no longer in existence,” says Tapper.
The trusts aren’t inherently stable and there have been some failures.”
“The problem has proved to be how difficult it is to wind up these pensions. They have spent a lot of money trying to close the schemes down but it's remarkably difficult to close a pension scheme down.
“When you select a trust, it's important to remember that you are dealing with not only the business’s money but your employees’ money too - money that they are saving so that they can retire in comfort. That requires a lot of care.”