How master trusts are regulated

30 December 2019

In this article, Richard Hulbert explores the new regulatory standards for Master Trusts, and explains the demanding authorisation process every scheme open to new business has been through in 2019.

This article was originally published on

Richard Hulbert, Investment Consultant (Wealth & Protection)

A healthy choice of pension scheme types exists in the workplace pension market across Contract, Own Trust and Master Trust (MT) governance styles.

MTs are one of the most popular scheme types and account for just over half of all retail schemes open today to new business, and well over 7m individuals save in them for their retirement.

Understanding how well MTs are run has historically been a time consuming activity where assumptions had to be used and subjective decisions reached. 

However, following the positive growth created by auto-enrolment there is growing concern that just one provider failure could now have catastrophic impact on the public’s trust in the pension industry.

In addition, individuals could lose their incomes in retirement and the government could be forced to support pensioners left in poverty.

Aware of these concerns, the government introduced the Pensions Schemes Act 2017 and the Occupational Pension Schemes (Master Trusts) Regulations 2018. 

These legislated standards are now being introduced by The Pensions Regulator (TPR).

They also provided TPR with new statutory objectives to:

  • Protect the benefits of pension scheme members
  • Minimise any adverse impact on the sustainable growth of an employer(in relation to the exercise of functions under Part 3 of the Pensions Act 2004)
  • Promote, and improve understanding of, the good administration of work-based pension schemes
  • Maximise compliance with the duties and safeguards in the Pensions Act 2008.

In effect, the legislation gives TPR teeth and the powers to regulate schemes while also acting as police, judge and jury.


The authorisation process started in October 2018 and gave existing MTs until the end of March 2019 to apply to TPR. Any scheme that did not apply for or failed to gain authorisation cannot operate and is required to wind-up and transfer members to another solution.

We had expected all applications to be processed within four months of the application closing date.

However, this has not happened and there are still a handful of schemes awaiting decisions.

One positive outcome is that once a scheme has been authorised the information becomes public and we can now all check which schemes are authorised by visiting:

It is worth noting that this list is still being populated and the definitive one is not expected to be compiled for a few more weeks.

Authorisation was not straightforward and it was costly in time and money, especially where process changes were required. Schemes also had to pay TPR to process their application.

We already know that a number of schemes have decided not to apply for authorisation or have agreed to be taken over if they receive authorisation. 

Collectively these changes are reported to half the number of authorised MTs between 2018 and 2020.

Interestingly, the tougher standards have already led one new provider to make a commitment to open a new MT in 2020. It will be interesting to see if others follow.

One aspect of the new authorisation process is to make the Master Trust Assurance Framework (MTAF) redundant. As such, Defaqto Engage users will see reference to it disappear from our database in early 2020.

What is involved in being authorised?

Full details can be found in TPR Code of Practice, code 15: Authorisation and supervision of MTs. 

In essence, the code sets out the fit and proper assessments that schemes and the key people fulfilling certain roles must pass. 

TPR has identified three critical roles.  Collectively individuals within these roles have the responsibility for ensuring members’ interests are protected and that the day-to-day running of the MT is planned, resourced, and adequately funded.

Master Trusts critical roles

This is irrespective of whether they do it as individuals, a group of individuals and/or individuals working on behalf of a corporate entity. 

Where a role or part of the role is fulfilled by a corporate entity, TPR also wish to assess the appropriate senior individuals.

Additionally, there are two discretionary categories where TPR can choose to assess those fulfilling roles for fitness and propriety. 

These roles are considered discretionary as the influence and/or financial incentive differs between relationships and schemes. The roles are:

Master Trusts roles

Each role has a different assessment criteria and therefore where an individual carries out more than one of the roles they must be assessed separately for each.

The authorisation criteria can be split into five assessments:

  1. Fit and proper
  2. Systems and processes
  3. Continuity strategy
  4. Scheme funder
  5. Financial sustainability

Each of the five assessments is designed to make sure the members' interests are protected in the event of a triggering event (See below).

We summarise each of the five assessment below. However, before we do it is important to understand what a triggering event is.

Triggering events

This is an event that could cause a MT to struggle to maintain its ongoing compliance and the provision of its statutory duties, including:

  • Maintaining up-to-date member records
  • Handling investments
  • Recovering outstanding contributions
  • Continuing to pay benefits for members already in retirement
  • Maintaining administration of the scheme
  • Retaining access to service providers (audit, accounting, investment, legal, etc.)

All triggering events need to be identified and a formal resolution plan put in place should they occur.  Importantly, if they do occur they must now be reported to TPR. 

Fit and proper

All individuals being assessed must satisfy to TPR that they are fit and proper. This is done by evidencing that they meet the standards for:

  • Honesty, integrity and financial soundness
  • Competency (knowledge) and conduct

A declaration of financial strength, enforcement actions and criminal convictions will be required for each individual.

For trustees and strategists, TPR requires evidence of competence

Items such as statements of development, evidence of qualifications or learning programmes and other relevant experience.

Systems and processes

MTs must have sufficient IT systems and processes in place to run efficiently. 

In addition, they must have robust systems and processes to effectively govern the scheme and comply with all the relevant requirements.

MTs must confirm that their IT systems can provide a minimum functional capability, and be able to demonstrate it.

In addition, for functionality and maintenance of IT systems, TPR is looking at:

  • Administration of payments
  • Administration of records
  • Administration of transactions
  • Planning for change
  • Protecting data

TPR is also looking at evidence such as assurance processes, audits, and similar documents provided by service providers. Other factors considered include:

  • Trustee recruitment and standards
  • Trustee governance
  • Managing service providers
  • Risk management
  • Risk register
  • Planning resources effectively
  • Communicating  with members

Continuity strategy

Each scheme must report on how members’ interests are protected if a triggering event occurs. This is known as a continuity strategy.

There are a two possible continuity outcomes:

  1. Members' interests are best served by being transferred out to another solution and the scheme wound up. A scheme that is not authorised (in 2019), or is de-authorised, must follow this
  2. The triggering event can be resolved and the normal operations resumed.

It is worth noting that an MT cannot increase or introduce new member charges or take on new employers until an event has been resolved. In addition, the costs of the resolution cannot be passed onto members.

Scheme funder

The scheme funder must be able to demonstrate ability to provide the necessary support to the MT as and when required.

Scheme funders must provide accounts and other financial information to demonstrate their ability to meet the costs of the MT, including:

  • Actual turnover, gross margin, overheads and operating profit for the previous 12 months
  • Cash flow statement for the previous 12 months, including any undrawn overdraft facility or revolving credit facility
  • Forecast and actual profit and loss for the previous 12 months
  • Budget for the year to date and any variation against that budget
  • Cash resources
  • Cash flow forecast for the following four quarters
  • Operating costs
  • The extent to which any of the scheme’s costs are covered by an insurance policy or policies.
  • The source of funds for maintenance of any such insurance policy
  • Inter-company loans and other forms of funding.

Additional financial and other information will be required from those scheme funders who wish to carry on other activities not directly related to the MT.

Financial sustainability

MTs must evidence that they have access to sufficient financial resources to cover their set up and running costs. This is in addition to reserves required to cover costs arising from a triggering event.

The evidence required will depend on the scheme but commonly includes:

  • MTs business plan
  • MT’s accounts
  • Scheme funder’s accounts
  • Statement of investment principles
  • Chair’s statement(s)

TPR may also require:

  • CALP report (costs, assets and liquidity plan)
  • Evidence of reserves held for supporting the activities of the MT
  • Documentary proof of support being offered by the scheme funder or funders
  • Details of joint bank accounts or escrow held by or on behalf of the trustees and scheme funder
  • The latest accounts of all third parties holding ear-marked insurance policies or annuity contracts, and any group of which it is part of
  • Extracts of the MT’s trust deed and rules, which govern expenses and winding up arrangements
  • Details of service contracts and insurance policies held
  • Any other documents that the scheme can demonstrate to be relevant


The new authorisation process is a huge step forward and should be welcomed as it provides a solid foundation for every MT and indeed the market in general.  

Additionally, in the future, should a crack appear in that foundation TPR should be instantly notified of it and be actively involved in fixing it, or as a last resort closing the scheme and moving members to another solution.

Defaqto Engage users will continue to be able to compare side-by-side contract, own trust and master trust schemes. In addition, Defaqto publishes Star Ratings to express the quality of schemes to help decision makers identify good quality schemes and these can be freely viewed on the Defaqto website.

Looking forward, the workplace pension landscape looks smaller than just a year ago, but far more robust. As the chart below shows there remains a wide and varied population offering a healthy choice of solutions to meet client needs.

Workplace pension market

Workplace pension market

Want to learn more?

You can learn more about Star Ratings here.

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