The Pensions Regulator’s (TPR’s) definition of a master trust is:

• An occupational trust-based pension scheme established by declaration of trust which is or has been promoted to provide benefits to employers which are not connected and where each employer group is not included in a separate section with its own trustees. For this purpose, employers are connected if they are part of the same group of companies (including partially owned subsidiaries and joint ventures).

Under a master trust:

• each employer has its own division within the master arrangement;
• there is one legal trust and, therefore, one trustee board;
• the trustees retain decision making independence for each division on things such as investment funds and service providers under a trust wide governance structure, and
• the decisions over benefit and contribution levels typically reside with the employer;
• the costs associated with an employer running its own trust-based scheme can be avoided, making master trusts relatively cost effective
• employers are offered greater simplicity and convenience.

Benefits:

• Offers a governance function for employers with lower operating costs, greater simplicity and convenience than a single employer scheme.
• Members benefit from the ongoing management and oversight of investments.
• Only one group of professional advisers is needed for the whole scheme, rather than a group for each division.
• There is one board of trustees for the whole scheme rather than a board for each section.
• Consolidated accounting and governance requirement.

Negatives:

• If trustees are appointed by the provider of the master trust the employer is unlikely to have any trustee representation and so can become disengaged from the pension arrangement.
• Many of the trustee boards of master trusts established by insurance companies have representation from the insurer parent; this raises questions over conflicts of interest.

TPR requirements:

• the persons involved in the scheme are ‘fit and proper’ to act in their roles;
• the scheme is financially sustainable;
• each ‘scheme funder’ meets set requirements, which means that it is a corporate body or partnership and only carries out activities that relate directly to the master trust scheme of which it is the scheme funder;
• the systems and processes used in running the scheme are sufficient to ensure it is run effectively; and
• the scheme has an adequate continuity strategy.
• Triggering events must be reported to TPR such as insolvency issues for the scheme funder

A ‘voluntary assurance framework’ enables trustees of master trusts to demonstrate to employers that their scheme is managed to a high standard. The framework was developed in association with TPR in order to support trustees of master trusts and practitioners