Master Trusts – Welcome to the Hunger Games

The premise of the Hunger Games is simple. If you send a tribute (or two) from all the districts in to a dome, they all kill one another, and one walks out the end.  More or less the ultimate expression of the survival of the fittest.  This is the solution to over population, civil war and apparently randomly brings peace to the world.  Who knew?  It is also in some opinions a future UK policy post Brexit.  I don’t fancy my district’s chances if they send me …..

To ensure the fitness of the population of UK Master Trusts, several tributes will be sent to Brighton to battle it out for the right to qualify for the Master Trust Authorisation. Replacing Master Trust Assurance effectively from 1 April 2019,   the badge of honour it is now required to offer yourself as a Master Trust.  Without it you are dead – forced to wind-up.

The Authorisation process is likely to be a bruising affair with, amongst other things (including the payment of a chunky lump sum) a deep root and branch review of all your processes, checks that individuals involved in the running of the Trust are “Fit and Proper” (back to fitness again), reviews of business and contingency plans and a review of the finances of the Scheme Funder . The process we understand will likely culminate with an interview in Brighton for the Trustee Board, examining in further detail some of their answers provided.  Trustees won’t be able to simply lean on their advisers – they will need to understand what they have submitted and why.

To be clear, I fully agree it should be a difficult process. 8 million members have been auto-enrolled – the vast majority into Master Trusts.  For the system to work they need confidence that they are Members of quality schemes. Those members going in are no longer just engaged employees from firms with some budget to educate.  There is a huge number of members who are more or less totally reliant on the provider to manage their money, educate them on the options, give them clarity on what their contributions will provide and support them through decumulation.  Your “mark 1” GPP could not have done this in a million years – an incomprehensible annual statement and access to a tied adviser on retirement was about all one could expect.

The key questions are how many victors will emerge and what becomes of the Members of those who fail? The Hunger Games only wanted one (or two if they happen to be star crossed lovers who challenged the system), whilst I am sure TPR want more than one, how many Schemes can the market effectively support?   There was always going to be consolidation in this market, as critical mass was going to be tough to achieve in the charge cap and DC Governance framework environment.  However, I expected that to be from failures rather than hard regulation.  Some have refused to enter the dome, and have bowed out already.  An option not afforded to Katniss Everdeen.

I do feel slightly for those who have gone into the market with good intentions and an expectation they would improve over time. These may fall foul of the new regime.  However, in general this should be good for members.  These master trusts will be huge in the future, and once this is over the next step may be for TPR to consider how best to challenge these behemoths to innovate and to develop.  The authorisation framework should be an evolving process with Joe Bloggs on the street with zero financial education firmly in mind (to be fair, I would actually prefer schools taught this better – but that’s another story).  If they fail to do this, I sense the districts may go to war when they see the pension they end up with after 50 years in a pension Scheme!   Although with auto enrolment minimums that may still occur (again another blog).