Back in May 2014, the Pension Regulator launched on an unsuspecting world the ICAEW’s Technical Release “Assurance reporting on master trusts”. At the time I was dismissive of this document and the Master Trust Assurance Framework (MAF). Write in haste , repent at leisure, I have learned its value in the 14 subsequent months.
My concern was structural and centred on this paragraph in the preamble
It is not intended that the provision of a trustee’s report or an independent assurance report be mandatory. However market participants offering Master Trust arrangement may find it advantageous to be able to provide such a report to potential and existing customers…
A risk-based approach to due diligence provides one view of a pension arrangement, it helps establish whether the scheme is being properly run and gives assurance to employers and members of the scheme that their money is in safe hands.
But people want to know that the pension their employer has decided upon is more than well-run, they’d like to thing that it’s “good”.
But what has happened since suggests to me that tPR and ICAEW were right (and I was wrong). The platform on which we need to build a new breed of workplace pensions needs to be first and foremost “well run”. We cannot take “well run” for granted as I originally did.
I have been proved wrong because several of the trusts and master trusts being used for auto-enrolment have proved to have the kind of structural flaws that – had they been subject to the scrutiny of MAF, would probably have been rectified. At the very worst the master trusts would have been taken off the market for a time, but we would have had less failures.
I also failed to anticipate the arrival of master trusts that are entirely unsuitable for auto-enrolment. The Professional Pensions definitive list of master trusts now boasts over 50 schemes open to employers and reckons there are at least another twenty it does not know of. I would be surprised if the total number of master trusts was not well into three figures.
The barriers to entry for those running occupational pension schemes are very low and no higher for those who want to run the schemes under a master trust to multiple employers. The MAF is an entry level standard that every master trust should aspire to. Small master trusts may take a few months to get the MAF and can be “MAF pending”, but if they do not have achievement of the standard written into their early stage business plan, those doing due diligence on that plan are entitled to ask “why not”.
The answer to that question is of course money. It costs – we think – around £100,000 to achieve the standard, that’s the cost of internal management time and the overt costs of employing a skilled assessment of your processes , sufficient for the standard to be achieved.
To date only two mainstream master trusts, Now and The Peoples Pension have gained the standard, a third SEI has achieved the standard but is not generally marketed as a qualifying workplace pension scheme.
It is now time to ask those small master trusts that are on the PP list but have not achieved the standard to step up to the plate (or risk being marginalised).
Frankly, the risk of auto-enrolment going wrong because of provider failure is too high for us to put our trust in pension schemes that do not meet initial standards.
If the cost of the MAF is not baked into the business plans of the master trusts on the PP list, then it is time for the management of those plans to reconsider their business plans.
I am particularly concerned that NEST, which has the resource to do most things, has not adopted the MAF. It should have been first in the queue and it should be setting an example. Right now, many smaller master trusts can rightly ask why they should be adopting MAF and not NEST.
NOW pensions have been calling for MAF to be mandatory (as IGCs are mandatory for insurers). Bearing in mind master trusts have none of the onerous reporting requirements to the FCA (or are obliged to be reserved to meet EU solvency standards), NOW has a case.
But the immediate answer to the issues of confidence (assurance) , is to ensure that due diligence is carried out by those who are choosing workplace pensions for their staff. It is the employer’s duty to choose, though they can outsource the due diligence to third parties- suitable advisers. At the advisory level, the failure of a master trust not to achieve the MAF must cast serious doubt as to its suitability.
I started this article chastising myself for not sufficiently promoting MAF last year. I will however defend myself on my fundamental concern. MAF is not everything, it is the entry level standard – but it is not the only perspective on which workplace pensions should be judged.
We should consider MAF in time as a commodity – a box ticked. At the back of the MAF are appendices that list the quality features of a workplace pension. These are based on tPR’s 31 characteristics which in turn are based on tPR’s 6 principles and ultimately the 6 metics that make for good DC outcomes published way back in November 2011.
We must move beyond MAF and look at choice in terms of these quality metrics. If people are to be enthused to save, they must think their savings plans really good – not just well enough run.
There is only one MAF, only one standard for master trusts to achieve, in order for master trusts to earn the respect of those conducting due diligence, I hope that those who run them will start seeing the MAF as a “must have”, not a “nice to have” and certainly not a standard to be dismissed.