Master Trusts Now Required By Law To Have Capital Buffer

The government will publish the Pensions Bill on Thursday, legally requiring all Master Trusts or multi-employer pension schemes to have a capital buffer.

The buffer’s purpose is to cover up wind-up costs and operating expenses for a set period. This is to ensure the fund will continue to operate proper and avoid deficits in the future.

There are no laws that require a capital buffer on Master Trusts. All auto-enrolled workers will receive the new consumer protection the government provides.

About 6.7m workers enrolled into workplace pensions have joined schemes involving Master Trusts since 2012.

The capital requirement is part of a package of measures — including a “fit and proper” test for those running trusts — designed to introduce consumer protections to the Master Trust sector, which has seen rapid growth since the launch of automatic enrolment four years ago.

“Proposals to force Master Trusts to hold capital are broadly welcome but we need to see the details,” said Darren Philp, head of policy with The People’s Pension, which has 2.3m members. “It certainly makes sense for Master Trust members to be protected in the event of a wind-up.”

The measures are expected to apply to existing and new entrants in the Master Trust market, in a move likely to trigger the closure of weaker schemes or consolidation in the industry.

“The market will consolidate but that is positive if it means the schemes that don’t have enough capital are no longer operating,” said Morten Nilsson, chief executive of Now pensions.