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Master trust definition: act now to avoid an unwelcome surprise gift

  • United Kingdom
  • Pensions


The Pensions Regulator has issued a starkly worded reminder to occupational pension schemes to check whether they fall within the definition of “master trust” in the Pension Schemes Act 2017.   Schemes that meet this definition (even if only inadvertently) risk having to go through a complex and expensive authorisation process by 31 March 2019 or being hit with penalties and forced to wind up.

The majority of master trust schemes have been set up intentionally to operate as commercial master trusts. However, the definition of a master trust under section 1 of the Pension Schemes Act 2017 is drafted widely and captures more schemes than you might expect. It says a master trust is an occupational pension scheme which:

  • provides money purchase benefits (whether alone or with other benefits)
  • is used, or intended to be used, by two or more employers
  • is not used, or intended to be used, only by employers which are connected with each other, and
  • is not a relevant public service pension scheme

It may not be straightforward to assess whether a scheme meets these criteria. It will depend on benefits provided under the scheme and, if these include any relevant money purchase benefits, on the employers’ corporate structure. The underlying definitions are complex. There are some exemptions for defined benefit schemes that provide money purchase benefits but those are quite narrow and do not cover some of the incidental money purchase benefits that defined benefit schemes commonly provide. Please see our previous speedbrief for more detail.

The Pensions Regulator saysIf your scheme is defined as a master trust and you haven’t applied for authorisation … you will be operating illegally after 31 March 2019 and will have to stop operating and wind-up. We may also serve you with a penalty”. The complicated authorisation process includes a fee of £41,000 for existing schemes and there is an ongoing compliance burden.  The alternative of winding up and penalties is clearly not an attractive option.

Trustees and sponsors of multi-employer schemes should consider immediately whether their scheme provides or might provide any money purchase benefits that could trigger the master trust requirements. If so, do all of the participating employers satisfy the statutory test of connectivity? It is reasonably common, particularly for larger schemes, to have participating employers outside the corporate group. If a scheme does inadvertently fall foul of the definition, it may be possible in some circumstances to take action before 31 March 2019 to avert the need for authorisation or wind-up but that would require time and planning.

Where a scheme meets the master trust definition or where there is any doubt as to whether it does or not, legal advice should be sought as a matter of urgency. The consequences of not taking action could be severe.