MasterTrust Capital Adequacy: Let’s ensure we know what we are talking about…

24 November 2016

The National Pension Trust welcomes the new Pensions Schemes Bill which has proposed a requirement for the financial stability of MasterTrusts. 

There has been speculation in the press about what the new requirements mean.  Some commentators have suggested that only insurers will be able to effectively meet the criteria whilst others have proposed that an arbitrary capital level of, for example, £2m be set.  

Ken Anderson, Head of DC Solutions at Xafinity cautions against such broad statements: “It is important to be clear what we mean when we talk about financial stability. Within most MasterTrusts, members’ funds are invested with insurance companies that are already subject to capital adequacy requirements and protected by the Financial Services Compensation Scheme. Much of the financial risk is therefore already mitigated. The Government’s challenge is to ensure that each MasterTrust can continue to provide high quality administration and member support, now and in the future.”   

Anderson continued: “Some Mastertrusts have invested significantly in systems and resources and as a result can support members to access the full range of retirement flexibilities.  Others have not; they will need to invest significantly to ‘catch up’.  The challenge will be can they?  This is part of what the discussion on financial sustainability should be about.

“This challenge is compounded for those MasterTrusts that have focused on the auto-enrolment market.  They typically will not make a profit for many years and they will require significant financial support until they do so.  Other MasterTrusts, such as the National Pension Trust, are already ‘self- financing’ - their need for financial support will be less.  Regulations should reflect the different circumstances of different MasterTrusts.


MasterTrust Capital Adequacy: Let’s ensure we know what we are talking about…

PDF of Media Release


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