The UK Pensions Regulator (TPR) has said it will take “bolder” steps to tackle risks stemming from the master trust market and soon revise the voluntary assurance framework for the sector.

Lesley Titcomb, TPR’s chief executive, said bolder regulatory action was needed in light of emerging risks, including cyber crime and developments in the defined contribution (DC) market.

She added that the regulator would be more “innovative” with the kind of support offered to trustee boards and sponsors.

The regulator’s corporate plan for 2016-19 noted that large numbers of new pension savers – it estimated 71% of new savers in the seven years to December 2015 – now had accounts with master trusts, and that more than half of all DC savers were members of one of the four largest master trusts.

While it stressed the benefits of scale of master trusts, noting that they were often better governed, it said it nonetheless had concerns about the risk of one of the schemes failing.

“A major failure of a large master trust, having no sponsoring employer to support it, could result in members being forced to meet the administration costs as a result of its disorderly exit from the market,” the report says.

“It would also leave potentially large numbers of employers needing to find alternative arrangements to comply with AE.

“Alternatively, members of small master trust schemes risk becoming trapped in a scheme that attracts insufficient members or assets to be sustainable.”

The regulator said that either of the above cases could lead to a loss of member savings and damage confidence in the market.

As a result, it said it would “guide” employers to use providers regulated by the Financial Conduct Authority (FCA) or master trusts that had completed the master trust assurance framework designed by the Institute of Chartered Accountants in England and Wales (ICAEW).

The regulator said it would work with the ICAEW to draw up a revised assurance framework, to comply with its revised DC code.

The UK government has already pledged stricter regulation of the master trust sector.

Andrew Warwick-Thompson, executive director for regulatory policy at TPR, previously told IPE the regulator needed to think “very hard” about how to prevent the number of master trusts rising further than the current 73 providers.

While no concrete details have been announced, pensions minister Ros Altmann told the work and pensions select committee that either the regulator’s powers of intervention could be strengthened to protect members, or it could introduce “protections” to ensure members would not shoulder the cost of the disorderly collapse of a master trust. 

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