TPR warns against excluding small master trusts ahead of scale rules
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The Pensions Regulator is cautioning employers and advisers against predicting which schemes will stay in the market, as some smaller master trusts say they are being excluded from selection lists for prospective employers ahead of the new scale requirements. TPR also shares what it will look for when approving master trusts for transition pathway relief from the minimum size rules.
The announcement of the pension schemes bill requiring a size of £25bn for the DC default options of multi-employer schemes by 2030 “has already had a significant impact on the commercial DC master trust market, with corporate activity increasing as a result”, the regulator has said in a statement published on Monday.
“The behaviour of market participants such as employers and employee benefit consultants (EBCs) has also been affected, with perceived risks around scale informing employer selection and deselection of master trusts. We are aware of the potential impacts this may have on savers,” it added.
Some smaller master trusts indicated that they are being excluded from consultants’ selection lists for prospective employers because of assumptions about their ability to qualify for the transition pathway by 2030 and meet scale by 2035, according to TPR.
“While consolidation with a better-performing or better-managed scheme can be in the interests of members, consolidation is not without costs. We are therefore keen to ensure that members do not suffer unnecessary upheaval and increased costs due to the market over-estimating the risk of a scheme not meeting the scale requirements,” the regulator said.
TPR has said advisers and employers should be cautious about “second guessing which master trusts not yet at scale will be unable to meet scale within the timescales” and is setting out how smaller providers can demonstrate they are on a path to £25bn by 2035 to arrive at compound annual growth scenarios.
TPR has said advisers and employers should be cautious about “second guessing which master trusts not yet at scale will be unable to meet scale within the timescales” and is setting out how smaller providers can demonstrate they are on a path to £25bn by 2035 to arrive at compound annual growth scenarios.
Richard Knox, executive director, strategy, policy and analysis, said: “We want master trusts to consider their potential to grow, understand the evidence that may be needed in future, and assess their operational readiness for the changes proposed in the bill.”
He said by preparing early, trustees can make informed decisions that support long‑term value for savers.
“Employers and advisers also have a vital role to play, and we encourage them to take a proportionate, balanced approach that focuses on what delivers the best outcomes for members,” he added.
TPR said it encourages them to consider:
- compliance with auto-enrolment obligations;
- value for money, including investment performance and service quality;
- governance and operational resilience;
- preparedness for the proposed scale requirements; and
- quality of administration and transition processes.
Trustees meanwhile should start to think about:
- how their scheme might grow over time, including analysis of organic and potential inorganic growth;
- what evidence might underpin future growth projections, including demographic factors, contribution flows and investment assumptions;
- whether their governance, systems and processes are positioned to support future scale requirements;
- how their investment capability and governance align with wider reforms in the bill; and
- what these changes could mean for current and future members, including value for money and long‑term outcomes.
The statement builds on a paper by the Department for Work and Pensions also published on Monday, with policymakers seemingly worried about unintended consequences of the government’s market-shaping scale requirement.
The government stresses the option for schemes making use of the pathway exceptions to the measures for smaller schemes that can demonstrate they will reach £25bn by 2035 and for new market entrants, saying a £5bn scheme can reach £25bn within 10 years.
The government stresses the option for schemes making use of the pathway exceptions to the measures for smaller schemes that can demonstrate they will reach £25bn by 2035 and for new market entrants, saying a £5bn scheme can reach £25bn within 10 years.
Are consultants doing savers a disservice by excluding smaller master trusts or were ministers naive about the market response to the DC scale policy?
