Good afternoon. Thank you for inviting me today. I’m always pleased to accept invitations and share the work of The Pensions Regulator.
The agenda is packed with contemporary subjects with a room of subject experts from across the industry so I’m sure it will be a really interesting event. I’ve been invited to speak with you about master trust authorisation and supervision, which is about as topical as possible.
As Head of Master Trust authorisation and supervision you might imagine that along with the MT schemes that are in the process of applying or have applied for authorisation
I’m reasonably busy at the moment. With the March 31st deadline only a few weeks off, my team and I are working hard at this interesting and pivotal time.
We’ve received a number of applications and we’re ready for the inevitable uplift that deadlines bring. We’re not expecting a last minute rush, but we suspect applications will be made up to the final moment. By the end of the year however there will be a market of authorised master trusts providing additional safeguards and better protecting members.
As you may be aware we authorised our first master trust last week: there will be more to come, but we are delighted to have reached this milestone so quickly.
The master trust project has generated a lot of interest. Rightly so. It’s a step forward in creating a safer and more sustainable defined contribution (DC) market.
It’s worth putting the project into the broader social context.
Pensions, so I’m told, are a relatively recent phenomenon. With life expectancy having increased massively in the last few decades.
In his recent book ‘Enlightenment Now’, Steven Pinker reminds us that it wasn’t that long ago that the average person had two stages of life; work and death. There was no retirement.
A hundred years ago men and women in the UK lived, on average to their mid fifties.
Today, on average, men live until 79 and women until 82.
The average man now retires aged 65. For women it’s 64. A new stage of life, which from watching my parents, looks wonderful – lots of travel with no account to a working daughter’s dwindling inheritance. And so it should be, across the board.
Public policy has had to develop to take account of this. Firstly with the concept of pensions at all and latterly to take account of longer-lived lives.
Taking a moment to pull away from the immediate technical challenges of making applications, authorising schemes and publishing lists to reflect on the huge success of legislative change. Automatic enrolment recently hit the 10 million mark – 10 million more people saving for retirement. And with this success the growth of master trusts.
A lot of positive energy is being spent, both by TPR and those submitting applications.
But pull back from that and we can see that the process of authorisation is the next step in increasing confidence in pensions.
Better outcomes for members are a realistic aspiration; whether Regulator, Trustee or Provider.
Though I’m closer to it than most, I see the authorisation of master trusts in its bigger context. I’m mindful that its part of the ongoing development of pensions and the market. I’m reassured – and I hope you are too – that the overall development of pension provision is well managed and progressive.
For those of you interested in the practical details; a whistle-stop journey through the development of ‘authorisation’.
We recognised the growth in MTs early on and the critical role they played in the success of automatic enrolment (AE). An efficient way to comply with AE duties. We worked with DWP on introducing new legislation. To give us a stronger regulatory grip and provide equal financial protections to members of these trust based schemes. Similar to the protections they would receive in a contract-based scheme regulated by the FCA.
Following the introduction of the PSA 2017, introducing authorisation and supervision, we published our code of practice and draft master trust enforcement and supervision policy for consultation.
We created a team of specialists, from many parts of our organisation and from outside in order to design and deliver this new requirement. I’m incredibly proud of what’s been achieved. As a technical exercise it was a huge challenge and the deadlines were fixed. The room for manoeuvre was limited, yet we met all our obligations and did so in a collaborative way. Working with industry, and ensuring a high bar for authorisation within the statutory timeframes given by the Act.
Stakeholders were open to discussion and challenge. Together we developed a robust and fair framework.
The importance of authorisation is appreciated throughout the industry. It supports the goals of AE, it provides a safe and sustainable DC market. It recognises the centralisation into master trusts, and the parallel development our ‘supervision’ approach.
Since October last year master trusts have to apply to us for authorisation. This has created a new set of standards which schemes must meet in order to operate.
One of the things we are able to pay closer attention to is administration. The regulations around master trusts are more robust in this regard. We want to ensure trustees have the right knowledge and experience and appropriate controls in place to oversee the running of the scheme. We appreciate that things occasionally go wrong. We want to see that internal controls have identified issues, that trustees have acted quickly to rectify matters and discuss them with us.
We can, we have and we will hold to account third parties, including administrators. One to one supervision allows us – more than before – to address issues of process, systems, data and the general management of information.
This shouldn’t be of great concern to you. Most administrators are diligent and professional. All you need bear in mind is that we will be having more detailed conversations with scheme administrators than before.
We publish an update at the beginning of each month, with the 31st March nearing I can tell you that as at the end of January, eight of 90 master trusts had applied. Thirty eight have triggered exit, of which seven have already exited and 31 have confirmed they will exit.
One has now been authorised which leaves 43 to apply or exit.
My team are going to have a busy time. But we are prepared.
When we developed the process we understood from market there would be an early spike of applications. We balanced this with the advice that we received from other regulators, ie the FCA’s experience on consumer credit, who felt any peak would likely be towards the end, so we planned and built contingencies accordingly.
Inevitably we’re seeing consolidation. The number of master trusts schemes is reducing and will continue to. We expected this and we’re working with those exiting to ensure an orderly and timely transition of members to another scheme.
The evidence points to a healthy consolidation market, from a wide range of master trusts. All are able to take on those exiting prior to authorisation. Reassuringly there is no evidence of schemes being unable to find another provider.
We monitor all exits, making sure members’ benefits are not affected. We ensure employers continue to meet their automatic enrolment responsibilities. If we have any concerns we work with the trustees of the transferring scheme to resolve them.
We haven’t set a target for the number of schemes in the market. The purpose of authorisation is to raise standards and provide security to members, rather than determine its size. We care not how many schemes exist, we care only that those that do are of a good quality.
We’ve been issuing reminders to schemes in relation to the deadline and repeating that the legislation allows for a six week extension. If there is good reason.
The kinds of reasons we will accept relate to key changes that would take effect shortly after the window closes. If you wish to request an extension, don’t leave it to the very last minute; especially in regard to things that should have been planned for.
If your application is going to be late we’d suggest you include an extension request with it.
I can’t impress upon you enough the importance of accurate data and good administration. They are key to a good submission. Absolutely vital is to include all the mandatory documents when applying and ensure the application is clearly structured. We appreciate a clear narrative, without assumed knowledge. Please avoid jargon and acronyms and sign post us to relevant evidence that supports any narrative.
The deadline is looming. The need to plan in relation to a compressed timetable is a fact that I’m sure has become all too relevant.
But I’ll stop there for fear of sounding like a Martinet.
So what happens when you submit an application?
You’ll receive an acknowledgment once the fee has been paid and the application has been submitted. If it’s complete we aim to review it within five working days.
It’s absolutely vital the application contains all the mandatory elements. If not, we won’t consider it received. Which means your clock continues to tick and ours doesn’t start.
When the complete application has been made you’ll get an acknowledgment from us. We’ll then organise a meeting with you and also notify the DPS. They will make contact separately to organise panel hearing if one is required.
We aim to have processed an application within four months, we authorised our first master trust within four months but expect will take longer when we have higher volume of applications. This will include review by supervisors, request for any additional information and, if necessary a meeting to test the application.
None of this is designed to catch anyone out. We’re not going to quiz trustees on intricate detail. We just need to be satisfied that what’s described in the application accurately reflects the operation of the scheme.
We will let you know whether or not we are authorising the scheme. And if we aren’t there is an option for an oral hearing.
If we have authorised your scheme you’ll receive a ‘welcome to supervision’ letter.
We aren’t offering supervision because we feel bodies are failing, we are offering it to provide help and guidance. Please don’t be worried by a supervisory approach, it offers nothing more than our interest in your outcomes.
Stepping away from the process for a moment. It’s worth noting three related areas that will be of particular interest to PASA and scheme administrators more broadly.
Firstly; we’re keen to stress that a trustee board’s oversight of scheme administration is an important element to overall scheme governance. Pleasingly we’ve many examples of quarterly administration reports being provided to trustees and discussed at board meetings.
What we’ve less of is evidence that the trustees are able to tell us why they’re satisfied they’re receiving the correct information in admin reports. Evidence that would reassure that any errors are being addressed.
We’d encourage scheme administrators to work with trustee boards to understand any specific concerns they have in terms of monitoring the quality of admin and record keeping for their scheme – given that every scheme is different. Keeping relationships open and of mutual benefit.
IT security and cyber risk is another area of interest.
This is an ever-changing; challenging area. We’ve seen differing levels of detail and evidence in terms of how IT systems and member data are protected. Administrators have a key role to play in promoting good practice. It’s always been essential to do whatever is possible to protect against cyber attack and data loss. News of recent hacks and data losses cannot have escaped your attention. We need to be assured that schemes have adequate processes in place. Schemes need to be ready to react and manage the effects of attacks.
Lastly, the Pensions Dashboard. The government has indicated that they want master trusts amongst the early adopters. Whilst this is not directly an issue for master trust authorisation, the quality of systems and processes for the delivery of scheme admin and record keeping – which we are actively assessing – will be key to supporting the dashboard once implementation begins. It is critical that, as an industry, record keeping is of a high standard and it remains that way by robust monitoring and the prompt detection and resolution of errors as they occur.
Looking forward; over the short term, we expect the master trust market to consolidate. We think this consolidation will continue. We will encourage consolidation for poorly run schemes and remove barriers to consoldation. In the longer term we think this will produce a more stable market and – ultimately – better outcomes for members. I’ve been asked to comment specifically on master trusts exiting from the market; those that are not applying for authorisation.
We continue to see a healthy consolidation market from a wide range of master trusts, actively taking on others of all sizes. Even those schemes with fewer members and relatively low assets are finding a place.
We’re engaging with schemes that trigger their exit from the market. Ensuring members are protected and communicated with as their benefits are transferred to another provider.
Each exiting scheme is assigned a single point of contact, who will regularly risk assess to ensure continued employer compliance, that member benefits are protected, and that members are being communicated with regularly, and clearly.
We must approve the scheme’s implementation strategy, and throughout the process we are there to both support and challenge schemes to ensure members are protected.
Also looking forward I wanted to discuss supervision and some of the outcomes from our ‘TPR Future’ project, a review of the way we regulate.
Through this and not just in relation to MTs, we’re working proactively with more pension schemes through a new range of interventions. We will address risks sooner, clearly set out our expectations and take action where necessary.
We have begun one to one supervision with twenty one of the larger schemes. These schemes are a mix of defined benefit (DB), DC and Public Service. Supervision will apply to master trusts and there are statutory requirements in relation to the supervision of MTs in terms of information sharing and reporting to us.
Master trusts with the most members can expect a higher intensity of supervision from us. The concentration of a large part of the market within a relatively small number of master trusts makes it appropriate and proportionate to maintain a robust ongoing regulatory relationship.
The intensity of supervision will vary in line with our assessment of the risks posed by individual master trusts, taking into account a wide variety of factors.
Our ask of master trusts is to be open, honest and proactive in your dealings with us. In return we offer support, a direct contact and expert guidance. That’s it. No tricks or traps.
The authorisation project has been a huge piece of work for TPR. I’ve been fortunate enough to head a team both in the design and now the delivery who have been creative, diligent and resilient. We’ve been equally fortunate to work with a market that supports authorisation to raise standards across the board for MT members who have been open and engaged with us and DWP throughout.
We’ve achieved our objectives and created a new regulatory process for an innovative pensions mechanism. That’s no mean feat and I think we can be proud of what we’ve done.
All that remains for me to do is thank you for listening. I hope you’ve been busy formulating some questions and I’ll do my best to provide some answers.