Lack of commitment to governance among mastertrusts leaves Regulator “disappointed”

The chief executive of the Pensions Regulator, Lesley Titcomb, identified mastertrust governance as one of her “biggest concerns” in the auto-enrolment space.

She described herself as disappointed by the lack of mastertrusts which have obtained assurance so far, and confirmed that the body is considering making the assurance framework mandatory.

Lesley-Titcomb

At the moment the only regulatory hurdle that mastertrusts must overcome is HMRC registration. “I have a rather different set of interests”, said Titcomb.

The regulator is more concerned about whether mastertrusts can look after assets adequately, and whether they have the expertise to wind up, should it be required.

Whether all mastertrusts can survive in such a crowded market is another source of worry for the regulator. “The thing that does concern me is the sustainability issue in a competitive market”, said Titcomb, arguing that “It could be messy” if they go under.

However, mandatory assurance is not imminent. “I have no rule-making power, so if I want to place a requirement on anything, I have to persuade the government,” Titcomb explained.

She also confirmed that any compulsory framework would need to be agreed with the ICAEW, which has issued a voluntary mastertrust assurance framework.

Getting auto-enrolment right

Titcomb confirmed that the auto-enrolment of 1.6 million small and micro-schemes was at the top of the regulator’s agenda. Many of these schemes will be likely to use mastertrusts, so their governance will be crucial in the coming years.

She also explained that now that the number of people in DC schemes has overtaken those in DB, the Regulator, which has traditionally been focused more on DB, has the “interesting challenge” of focusing more than ever on DC.

It will also have to change the way it communicates with smaller employers – a priority which was echoed in a later speech by pensions minister Ros Altmann, who announced a new communications campaign for auto-enrolment. “We have to talk to these employers in a very different way to the larger employers,” Titcomb explained.

That’s why the organisation is launching a new, simpler website, with more graphics, to help people through the process.

This is not to say that the DB sector will no longer be under the watchful eye of the regulator. Titcomb is particularly concerned about legacy DB schemes, where a company’s management could rapidly lose interest in a pension scheme where they are not themselves invested.

As with mastertrusts, good governance will be key here, she said.

One particular defined benefit concern is the level of training among lay trustees, Titcomb said. How can they protect the interests of deferred members if they are not adequately informed?

The regulator is looking to independent trustees to lead the way. “Schemes which are chaired by an independent trustee tend to be better governed and better administered,” she concluded.