UK – The UK Pensions Regulator (TPR) has sought to defend its proposals for stricter regulation of master trusts, arguing that the cost of its plans would be "marginal" and that the approach would ensure only providers with "durable" business plans would succeed in entering the market.

Coming after the National Association of Pension Funds warned that TPR's plans for an independent assessment of master trusts would see the costs of any such assessment passed onto scheme members, the regulator said it accepted that master trusts warranted "a different regulatory approach" due to differences with other occupational defined contribution (DC) funds.

It said it would nonetheless work with the Institute of Chartered Accountants in England and Wales (ICAEW) to draft a new framework, to be put out to consultation in a few months.

The regulator also argued that much of the industry's initial concern stemmed from the limited amount of information it provided in January, when it launched a consultation on the shape of future regulation.

In its consultation response, TPR said one way of reducing the cost of the assessment framework would be to focus on the "inherent risks" of master trusts, such as conflicts of interest.

"However, we do not view cost as a reason for abandoning independent assurance and believe that, as master trusts are based on scale, the costs will be marginal relative to membership and funds under management," it said.

The response stressed that it was important to guarantee providers looking to set up master trusts had "durable" business models, therefore requiring the regulator to set the entry level sufficiently high.

Market participants, such as Now Pensions chief executive Morten Nilsson, have previously questioned whether the UK government should not have pursued a licensing model when auto-enrolment launched, screening the providers entering the market.

The regulator's response said: "New and existing master trusts offer scale and should have sufficient resources to accommodate procedures that help maintain and demonstrate quality standards."

TPR promised that more detailed proposals, being drawn up by ICAEW in conjunction with the audit industry and master trust providers, would be put out to consultation this autumn.

Topics