Since 2012, employers in the U.K. have been required to automatically enrol their employees into a so-called auto-enrolment pension. Many employers — particularly those with a small workforce in the U.K. — have provided these pensions through a commercial pension product known as the “master trust.” A master trust is an occupational scheme, provided under trust and administered by a commercial provider, in which different (unconnected) employers participate. These providers were initially attractive to employers because they provided a relatively simple pensions product with limited administration by the employer and at low cost.
There are a large number of these products in the market, with significant disparity in infrastructure and their management’s experience and skill sets. Some have not done as well as expected and are highly likely to be wound up in the near future. (A few have done so already.)
The Pension Schemes Act 2017 increased the regulation of these products and required all master trusts to apply for authorisation from the U.K. Pensions Regulator starting in October 2018. The deadline for applications is April 2019, and those schemes that do not apply by the deadline or are refused authorisation must cease to operate after that date. Authorisation costs £41,000 and takes up to six months. Pensions industry commentators have predicted that up to 30 master trusts (out of a total of about 60 in the market) could disappear altogether to avoid the increased regulatory burden.
An employer that uses a master trust that is refused authorisation or that does not seek authorisation by April 2019 will need to find a new master trust for future use and may need to consult with impacted employees for at least 60 days before changing providers. Employers that use a master trust should contact their provider immediately to check on authorisation status and determine whether the provider is aware of any reason why it might not obtain authorisation.
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