Master trust capital reserving requirements
This guidance sets out what master trusts should be aware of and consider in respect of regulatory capital reserving requirements. It follows a review we carried out in line with government targets to cut unnecessary regulatory burden and promote data sharing.
The master trust reserving requirements are set out within the Occupational Pension Schemes (Master Trusts) Regulations 2018 and code of practice 15 on authorisation and supervision of master trusts. Changes to the regulations or code of practice would require longer processes. This guidance focuses on changes that can be made over a shorter period of time and that are within our current control. It includes updates to guidance and clarification of our expectations.
This guidance does not apply to any collective defined contribution (CDC) schemes.
Published: 20 March 2026
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Offsetting revenues
Overview and current position
Code of practice 15, paragraphs 244 to 247, details guidelines around allowing for schemes to use a portion of their future revenues, in the event of a triggering event, to offset against their total reserving requirement.
When authorisation was introduced, our guidance clarified:
“We consider each application on its own merits, but for most schemes an offset above 20% of financial reserves is likely to be significant.”
Schemes must apply haircuts to any revenue they intend to offset, as set out in paragraph 282 of the code. These haircuts are not scheme specific and were designed on the basis that most schemes would use revenue offsetting below 20%.
Most schemes now offset more than 20% of their reserves.
Recent data shows:
- 19 schemes offset more than 20%
- 5 schemes offset more than 60%
In these cases, schemes have usually provided scheme specific scenario modelling to show that, under stressed conditions following a triggering event, future revenue would still cover the offset amount with a prudent margin. As reliance on revenue offsetting has grown, this modelling is now considered best practice.
Typically, schemes:
- start with standard business as usual revenue forecasts
- adjust them for a hypothetical triggering event
- apply appropriate stresses or haircuts
TPR expectations and clarifications
Offsetting above 20%
We are comfortable with schemes offsetting more than 20% of reserves. However, where schemes seek to do so, we would expect evidence or modelling to show that:
- scheme specific stresses have been applied
- projected stressed revenue would still cover the offset revenue used in the offset
- a prudent margin remains
Best practice modelling should consider:
- employer concentration
- the scheme’s charging structure
- member profile
Schemes should not apply these scheme specific stresses in addition to the standard haircut, per code of practice 15 table after paragraph 282, as this would create unnecessary double prudence.
Completing the scheme financial template (SFT):
- All reserving asset values must be provided after applying the relevant haircut.
- Revenue offset figures must reflect haircuts at least equal to those in the haircuts table. Schemes may apply higher haircuts where justified by their scheme specific modelling.
The SFT heading above question 10 currently refers to asset values that 'exclude haircuts'. For clarity, you should note that schemes should interpret this as asset values net of haircuts. This will be clarified in the next SFT update.
Read the guide to completing the scheme financial template.
Revenue flow
Revenue does not need to be paid into a trustee-controlled bank account to qualify for offsetting. It may continue flowing into a corporate account, provided:
- this is the usual operating approach; and
- scheme running costs would still be met from this source after a triggering event
Trustees may wish to formally agree this process with scheme funders.
Revenue linked to AUM
Where revenue is linked to assets under management (AUM), TPR expects a prudent stress on AUM from the start of the triggering event period when modelling scheme specific stresses.
Offsetting below 20%
Schemes offsetting less than 20% do not need to supply modelling to TPR, although they may choose to undertake modelling for internal assurance. At the minimum the haircuts as per the code of practice 15 still need to be applied.
Stress on member costs
Schemes may consider whether it is appropriate to stress the direct member driven costs where these vary with the same drivers as the stressed revenue. Typically, per-member third party administrator costs and per-member investment charges.
Interaction with minimum liquidity requirements
Revenue offsetting does not remove or reduce the requirement to meet the minimum liquidity requirements in paragraphs 270 to 277 of the code, and in the updated guidance below.
Liquidity
Overview and current position
Code of practice 15, paragraphs 270 to 277, details expectations around ensuring a master trust has sufficient access to liquidity in the event of a triggering event. A triggering event can be unexpected and when it occurs, it is likely to lead to immediate costs arising from obtaining expert advice, communicating with members and other compliance costs.
Paragraph 276 states TPR is unlikely to be satisfied by a master trust with cash, or near cash, assets that are less than 15% of the calculated financial reserves.
TPR expectations and clarifications
Holding a lower level of cash
In certain circumstances, holding a lower level of cash than set out under paragraph 276 of the code may be considered acceptable, where:
- There is a clear agreement between the trustee and scheme funder that the scheme funder would cover the other costs of winding up. We note this may already be in place depending on the other assets being used to meet reserving requirements, for example if a guarantee or insurance contract is in place. We would expect the trustees to have taken appropriate advice on the agreement to ensure that it would be effective if a triggering event were to occur.
- Analysis is prepared and shared with TPR which evidences the cash assets cover the additional costs trustees may need to incur directly during the wind-up.
- The above analysis needs to be clearly agreed by the trustee, as well as the scheme strategist. The trustee will need to be comfortable that they would have direct access to sufficient cash assets to comply with all their duties in such a scenario where the scheme funder may be under stress.
Ensuring safeguards
Given the importance for trustees to retain sufficient direct access to cash to support any expenses directly incurred by them in complying with all their duties in such a scenario, we would not support any submissions which reduce liquidity to nil or clearly don’t comply with this principle.
As a safeguard we would not expect this analysis to result in cash assets that are less than the estimated costs of compliance as submitted in SFTs.
Allowance for other regulatory regimes
Overview and current position
Paragraphs 235 to 239 in the code set out expectations around taking into account other reserving requirements imposed by other regulators. This includes:
“We will take any reserving requirements imposed by another regulator into account where they are, and only to the extent they are, relevant. We may decide that a risk, while addressed under another regulator’s reserving requirements, is not fully addressed under ours and therefore needs to be reserved for.”
The code already provides flexibility to make an allowance for other regulatory regimes (for example the Solvency 2 Regulations 2015 (UK SI 2015/575)) and some master trusts have reached agreement with us to do so.
TPR expectations and clarifications
We expect any analysis to clearly show any arrangements for maintained reserve funding for the purposes of another regulator, can and will be deployed to the master trust if required.
We consider proposals on a case-by-case basis but examples of structures and arrangements which we are likely to agree can include a combination of the following:
- Trustees being satisfied that reserves held under other regulatory regimes also cover the costs of running the master trust following the triggering event. Depending on the complexity, trustees might consider whether they require independent advice.
- A legally binding mechanism with appropriate triggers linked to credit or solvency thresholds, which result in funds being moved under the control of the trustee should such thresholds be breached. These should be set to ensure the trustee has a high enough degree of comfort that funds would be available at the event of breaching the threshold if required.
- Periodic reporting to the trustees about appropriate triggers linked to credit or solvency indicators as above and the financial health of the entity that holds reserves held under other regulatory regimes.
- Legal arrangements and mechanisms that are deemed satisfactory by the trustee, based on legal advice, to ensure that if funds from reserves held under other regulatory regimes are required due to a triggering event, these will be made available to the trustee immediately on request.
- Legally binding agreement that any costs of winding up would be met from the other regime’s reserving requirements when required.
It is important to note allowance for other regulatory regimes does not remove the minimum liquidity requirements under paragraphs 270 to 277 in the code and the guidance in this statement. This includes not supporting any submission which reduces liquidity holdings to nil.
We encourage schemes who wish to explore this option further to discuss with their TPR supervisor.