The Regulator wants a mastertrust cull but winding up these schemes won’t be easy or cheap, warns Will Aitken

Barely a week goes past without another mastertrust appearing out of thin air.

What a few years ago was an almost forgotten product is now a burgeoning market of perhaps 80 different providers, all jostling for members. And still they come.

Can all 80 survive? The Pensions Regulator is on record as saying it would rather they didn’t – when asked at a recent event, Andrew Warwick-Thompson stated that rather than 80, a better number of mastertrusts was ‘around 10, including NEST’.

TPR advocates euthanasia for about 70

TPR welcomes mastertrusts because of their ability to scale investment and administration. But 80 mastertrusts are not a recipe for scale, and so TPR advocates euthanasia for around 70.

And that would be fine, but for one thing: pension schemes don’t just curl up and vanish. They can take a very long time and a lot of money to wind up. If a mastertrust costs any money at all to wind up, who pays?

  • The employer? It used a mastertrust so it didn’t have to get involved with governance.
  • The trustees? Do they have any assets?
  • The host provider that has already lost money? We can be confident that reputable providers will do the right thing, but is that the case for all 80?
  • The members?

Knowing the answer to this question up front is important - you wouldn’t want to be surprised by the answer if and when the mastertrust became insolvent.

‘Don’t worry’ say some. ‘The big mastertrusts will buy up the minnows’.

Will they?

No-one is going to be interested in merging systems

Many of these 80 mastertrusts are going to enrol the proverbial man and his dog. No-one is going to be interested in merging systems and communicating change to members of micro schemes – the costs will outweigh any benefit.

This issue may hit soon.

If a mastertrust hasn’t got critical mass by early 2015, it may never

If a mastertrust hasn’t got critical mass by early 2015, it may never – after that, only companies with fewer than 30 employees will be left to auto-enrol.

While there are a lot of those employers, taking them on profitably will require very slick processing. (NEST has that processing after thus far spending £240m on setting up..)

Some mastertrusts have a greater than 90% expectation of failure

The lesson?

If you’re hiring a mastertrust, choose carefully. Some mastertrusts have a greater than 90% expectation of failure.

Will Aitken is a senior consultant at Towers Watson

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