Membership numbers recently published by the big six mastertrusts highlight exactly how important they are in the auto enrolment market.
Of the three million people auto enrolled, over two million are in one of the big six mastertrusts.
With numbers like this, pressure is building on The Pensions Regulator (TPR) to take action to safeguard standards.
Data from TPR published in January 2014 revealed an 11% increase in the number of mastertrusts over the past year increasing from 44 to 49.
While the government and regulators all agree that mastertrusts have a significant and beneficial role in the auto enrolment market, this proliferation is causing the regulator sleepless nights. The proposed solution is a mastertrust assurance framework produced in conjunction with the ICAEW published on 1 May.
By requesting that mastertrusts obtain independent assurance on an annual basis by the ICAEW, it is hoped that employers will be able to better assess the quality of different mastertrusts and this, in turn, should help to drive up standards.
It’s entirely right for TPR to shine a light on mastertrusts because, in many ways, they offer an ideal solution for employers facing auto enrolment.
The structure enables even small firms to benefit from high standards of governance as the independent board of trustees that oversees the running of the scheme has a statutory duty to ensure that it is being run in the best interests of its members at all times. This means members have the comfort of knowing there is an independent body overseeing decisions on crucial issues such as charges, investment strategy and administration.
But, from my perspective, having a voluntary assurance framework will increase the financial and administrative burden on reputable players while those who it is intended to target will simply turn a blind eye. It also does nothing to address barriers to entry which are far too low.
When we came to the UK I was astounded by how easy it was to establish a mastertrust. There is no licence or regulatory authorisation required and no rules around capital adequacy.
While TPR hope that those who don’t obtain the assurance will be shunned by employers, the reality is that without significant effort to raise awareness of this differentiator amongst employers, the value of it will be entirely lost.
Research we recently conducted with 450 SMEs revealed that nearly half are yet to give any thought to how they are going to find a provider for auto enrolment. With a large proportion destined to leave it until the last minute, it’s unlikely that many will have the time or inclination to undertake a thorough market review before settling on a provider.
The bottom line is that while I’m completely in favour of raising standards in mastertrusts, a voluntary audit framework is no substitute for proper regulation that would establish barriers to entry and help drive the less durable players out of the market.
With more than 30,000 SMEs reaching their staging date this year, the time for procrastination is over. Decisive action needs to be taken now otherwise there is a very real risk that employers will find themselves in a sub-standard mastertrust that will close its doors in a few years’ time when it fails to achieve sufficient scale to survive in this market.