There’s no shortcut to pension due diligence -Ros.

due diligence 2

It’s reported in the FT that efforts to regulate the burgeoning master trust market have stalled and we’ll have nothing on the statute books this time 2017. This is no surprise, there is no legislative window till Pensions Act 2016 when I fully expect some kind of capital adequacy requirements for Master Trusts.

In the meantime, small master trusts are likely to have to pass “fit and proper” testing of their Directors if they want to call themselves “Qualify Workplace Pension Schemes” and they’ll have to shell out to the ICAEW to get the Master Trust Assurance kite-mark (as well) if they fancy a trip on the Pension Regulator’s marketing carousel.

As ace administrative consultant Alan Chaplin pointed out to me last week, the MAF qualification/kite-mark is a nice to have, but it no more assures you of good administration as the PLSA’s Pension Quality Mark. NOW Pensions has the MAF but have – since getting it – frequently fallen foul of the standards expected to collect contributions in a timely way.

MAF is a good start and there is no reason why established master trusts should not incorporate it into “business as usual”. Smaller master trusts like Wellness, which has bust the bank and got MAF are to be applauded, but we must take care not to assume that MAF is a guarantee of good behaviour. Indeed, if MAF has been achieved at the cost of providing proper customer service, then MAF might have done more harm than good.

Which brings me to the question of capital adequacy – “Cap-ad” as slick IFAs call it.

One of the reasons we have so many master trusts is because they are not required to put up capital to ensure that participating employers and members are protected if they fail. Nor do they have to pay a levy to the Financial Compensation Scheme which is handy for them but not so great for employers and members who may have scant protection. Finally, unlike FCA regulated contract-based schemes, master trusts do not have to operated under the “permitted links” rules- so they can pretty well invest as they please.

We need better consumer protection for members  and employer protection for those signing participation agreements. That will come in time , but in the meantime we need to restore confidence in pensions by providing employers with the means to choose wisely.


Trust is the word

The operative words for master trusts is “trust”. Whether you are investing with NEST or Nurture you are putting trust in the governance structure in place and in the offices of the Pensions Regulator. The Government are very right to be worried, some master trusts have poor governance and the Pensions Regulator has not the power to do much about it.

But the reason we have light touch regulation on master trusts is to ensure we have innovation. Innovative master trusts like Blue Sky (with their early adoption of proper at retirement options), Smart- who are market leaders in data integration and Salvus, who are expert in scheme aggregation are signs of a healthy market responding to the challenges of auto-enrolment and giving the big boys a kick up the bum.

Other small master trusts may also be doing a good job but you won’t find them on because we don’t have adequate information to properly assess their durability, inter-operability and their capacity to give members value for money. Services like are not definitive and we certainly don’t guarantee good behaviour, but we reserve the right to refuse master trusts (and contract based plans) a place at the table- and this is precisely what we do.

Sometimes this is with regret. I would like to know more about Wellness, and the Workers Pension Schemes , both of which have strong regional presences (the north of England and Northern Ireland respectively). But when a master trust will not give you information about itself, there is nothing you can do to promote it or reject it.

Sometimes there is no regret about it, we have now reported 19 master trusts to Action Fraud, I will not mention their names as that would be deemed tipping-off under the money-laundering regs but we know who you are. Schemes that flout the permitted links regulations and invest into UCIS funds as defaults have no place at the table.

No shortcut to due diligence

So here is my message to the DWP, the Pensions Regulator and the Pension Minister. If we are going to have a free market in pension provision, we must support and promote the capacity in the market that self-regulates. We trust the Regulator and the Regulator must show a degree of trust back.

As anyone operating in auto-enrolment knows, the following statement holds true

workplace advice

If tPR and  FCA want to persist with this highly libertarian approach, then they have no alternative but to promote good quality advice which is delivered with skill and knowledge and call out against the promotion of the one size fits all blanket advice, even when that blanket advice is to use their  “own scheme”.

To suggest for instance that a master trust that has achieved the MAF kite-mark is a safe option (as the Pension Regulator’s carousel currently does) is a phoney endorsement that carries no conviction but could (were one of the MAF accredited providers fail) prove cause of a mass class action that could dwarf the problems the Government had with Equitable Life.

Instead of the pseudo-endorsements currently on its website, the Government should get on with signposting employers and their intermediaries to places where advice on workplace pensions is available and it should be doing everything within its power to work with services (like ours) to promote us, to provide over-sight on what we are saying and to get market intelligence from us to inform its own work.

There is no short-cut to due diligence. The Pension Regulator’s website is in danger of becoming a short-cut and tPR, the FCA , the DWP and the Treasury need to address this situation now.

We do not have to wait to 2017 to get a working group together to ensure proper advice on workplace pensions (occupational and contract based) is available to all.

due diligence now



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to There’s no shortcut to pension due diligence -Ros.

  1. Jade Murray says:

    I’d like to offer a particular perspective on the cap ad debate.

    Let me set out my stall at the outset to say that I wholly support attempts to take poor master trust providers out of the market and to toughen controls more generally. We need to. However based on my recent experience, any new cap ad requirement that was to be imposed is very unlikely to be adequate to the job, and therefore in my view is not the solution.

    I’ve just been involved in a case where TPR went after a master trust provider and put a new independent trustee in place. There was then a process whereby relevant parties had the opportunity to challenge that before the Determinations Panel made a final order, as is the norm.

    Here is my observation. The combined fees of the independent trustee put in place by TPR and its no doubt very expensive pensions QC and its blue chip solicitors came to nearly £800k. That’s over a roughly 7 month period from when the independent trustee was parachuted into the scheme to when the Determinations Panel made a ruling.

    As a lawyer at a large international law firm and a director of an independent trustee company, I should of course be very careful about throwing stones. And to be fair, the scheme involved was not straightforward. But those costs are likely, ultimately, to be borne by the members. And it’s not exactly a large scheme in terms of asset size. Personally, I am staggered by those costs. But if that is the order of costs incurred by a TPR panel independent trustee and its lawyers in this kind of situation, then I really don’t think that any new cap ad requirement which would be acceptable to the “blue chip” end of the master trust universe is going to be viable…..

  2. henry tapper says:

    Thanks for that frightening piece of information Jade. Either we find a way to collapse the pop-up master-trust effectively or we make sure that they are trading solvently.

    Neither sound very easy.

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