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UK pensions speedbrief: Will your scheme be caught by the new master trust regime?

  • United Kingdom
  • Pensions


The new regime for the authorisation and supervision of master trusts is due to come into force on 1 October 2018 and existing master trusts will need to apply for authorisation from the Pensions Regulator before 1 April 2019. If a scheme that is a master trust does not apply for authorisation by the deadline, it will need to cease operating and wind up.

The authorisation process is complex and expensive (£41,000 for existing schemes). Details of how to apply and the large amount of information needed are set out in the Pension Regulator’s Code of Practice on the authorisation and supervision of master trusts.

Unfortunately, in some cases it may not be straightforward to determine whether a scheme is a master trust and some occupational pension schemes may find themselves unexpectedly caught.

What is a master trust?

The majority of master trust schemes will have been set up as commercial master trusts and will be quite clear that the regime applies to them. However, the definition of a master trust is drafted very widely and may well apply to more schemes than you might think.

Section 1 of the Pension Schemes Act 2017 provides that a master trust is an occupational pension scheme which (subject to some exemptions):

  • 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.

There are some exemptions for DB schemes that provide DC benefits. In particular, the master trust provisions will not generally apply where the only DC benefits are attributable to the following:

  • AVCs in respect of active members (or members who have ceased to be active only because they have reached the maximum number of years of pensionable service);
  • transferred-in rights in respect of active DB members where there is no further accrual in relation to such rights; and
  • pension credit benefits.

Note that these exemptions are fairly narrow and do not include all of the incidental DC benefits that a DB scheme might provide. For example, they may not allow for a closed DB scheme to receive DC transfer credits (often permitted to maximise a PCLS).

Where a hybrid scheme falls within the definition, the master trust regime will generally only apply to the DC element of the scheme.

Particular dangers for multi-employer schemes

If a multi-employer scheme provides any DC benefits which are not within the exemptions above, it should consider whether the master trust definition might apply to it.

The definition may cause problems because of the way it applies to schemes which are not used or intended to be used “only by employers which are connected with each other”.

For these purposes, employers will be connected with each other where they are “group undertakings” as defined by the Companies Act 2006. This definition is complex but looks at ownership and control of employers, including for example whether a company member has the power to appoint and remove directors.

Many schemes, particularly hybrid schemes, have long and complex histories and may well have employers participating who have no connection with the corporate group of the other participating employers.

In addition, we have also come across trustee companies (for example the pension scheme trustee itself) that are set up so they are owned by the individual trustee directors and therefore have no immediately obvious connection with the main employer group, but do have employees and participate in the scheme.

It is important to identify whether there are any employers participating in a scheme that are not “group undertakings”.

Next steps

Trustees and sponsors of multi-employer schemes should consider:

  • whether their scheme provides or might provide any DC benefits which could trigger the master trust requirements; and if so
  • whether all of the participating employers satisfy the connected test set out above.

If relevant DC benefits are provided and all employers might not be connected, consideration needs to be given as to whether either the unconnected employer should cease participating in the scheme or whether it is possible to make changes to ensure that it does satisfy the connected test.

Compliance with the master trust authorisation requirements will be a costly exercise and not one which many occupational pension schemes will wish to consider.

Action must be taken before April 2019 and the consequences of not doing so could be that the Pensions Regulator would require the scheme to wind-up.

If you would like any more information about how this might apply to your scheme, please contact your usual Eversheds Sutherland contact or: