Posted by

Peter Glancy, Head of Pensions Policy, Scottish Widows

21 Jan 2016

A common decision many employers have struggled with is whether to explore alternative pension arrangements, and move away from the existing scheme they have in place.  And, with an increasing number of smaller employers joining the auto- enrolment train, the question of which type of scheme to choose is critical.


Large employers continue to look for guidance as to whether to maintain their existing Occupational Defined Contribution (DC) arrangements or to move to multi-employer pension plans. In turn, the latter then opens up the debate as to whether that multi-employer vehicle should be a Master Trust or a Group Personal Pension.


Without independent research to compare, it has been very difficult for employers to make the important decision of what type of pension is most appropriate for their workforce, when ultimately this decision lies within the governance framework which the pension operates.  

To support employers, in October of this year, Scottish Widows funded research outlining the merits of the respective frameworks. The research was conducted by the Pensions Policy Institute and resulted in an independent and expert summary, providing a comparison of the regulatory frameworks for DC pensions.


In our view, the key points to consider:

  • The Pensions Regulator is best suited to supporting those in the pensions market who exist solely to provide pension benefits to scheme members.  These are primarily Defined Benefit, traditional Occupational Defined Contribution and not for profit arrangements.
  • The Financial Conduct Authority (FCA) has a broader remit, in particular the supervision of commercial firms which promote and distribute pension plans.  In particular, they seek to ensure a fair balance between commercial interest and consumer interest, and to regulate against conflict of interests.
  • The report points towards regulation being outpaced by market innovation, particularly around the new phenomenon of Master Trusts.  Those operating with a profit motive may not yet have an appropriate regulatory framework within which they can operate safely and with longevity on behalf of customers.


Industry discussions:

  • Make the Master Trust Quality Assurance Framework mandatory.  This is a good and existing framework which would undoubtedly raise standards and could act as a barrier to entry at a time where additional capacity might be welcome.  However, unless this became a prerequisite to market entry it may not prevent the less well intentioned or less capable from acquiring customer assets.
  • Bring firms operating Master Trusts with a profit motive under the governance of the FCA.  Many members of Independent Governance Committees also sit on the firm's Master Trust Board and find it confusing having to govern two almost identical arrangements in two quite different ways.  Or, the powers of The Pensions Regulator could be extended to mirror those of the FCA as described above.


This report brings out clearly the key points which employers should be considering.  It also raises some interesting issues which will influence policy matters over the short to medium terms.   

All views expressed in guest blogs are that of the authors, and not of the British Chambers of Commerce