Auto enrolment pensions dangers- regulator warns

Workers who have taken out auto enrolment pension plans could be at risk of losing their savings, the industry regulator has warned.

Workers who have taken out auto enrolment pension plans could be at risk of losing their savings, the industry regulator has warned.
Independent experts claim the problem could affect up to a quarter of a million people a year who are putting their savings into so called master trust pensions.

Such schemes are popular with the 1.8 million small employers with fewer than 30 staff who are currently signing up under the auto enrolment programme.

“There is a risk of these schemes falling over; there is a risk that members might lose their money,” said Andrew Warwick Thompson, executive director for regulatory policy at the Pensions Regulator.

However, he said scheme assets invested through asset managers regulated by the Financial Conduct Authority (FCA) would be safe.

The regulator also raised concerns about some of those in charge of such pension schemes.

Some of the small pension providers “may not be run by competent people”, said Mr Warwick Thompson.

Even where directors are qualified, providers do not always make it clear where the savings are invested, or who owns the schemes.

Unlike big pension providers – known as contract-based schemes – master trusts are not regulated by the FCA. Instead they are overseen by The Pensions Regulator (TPR), which provides a much lower level of supervision.

However the government said it was aware of the issues related to some master trusts, and was working to protect employees’ savings.

“We are determined to ensure the necessary protections are in place,” said Baroness Ros Altmann, the pensions minister. “Doing nothing is not an option, as ensuring long term security and protection are paramount in pensions.”

Those whose savings are invested with mainstream City firms have much higher levels of protection, thanks to FCA regulation.

Some such savings are also protected under the Financial Services Compensation Scheme (FSCS), but only up to a limit of £50,000.

Companies with more than 50 employees are currently excluded from this. However the FCA is consulting on whether FSCS protection should now be extended to larger companies.

At the moment anyone who registers with HM Revenue and Customs (HMRC) can set up such a pension scheme. They do not need to have any particular qualifications for the job, nor do they need to have any financial assets.

The only criteria is that they need to be a “fit and proper person”.

However, in its guidance, HMRC says it assumes that anyone registering will be fit and proper – unless it has information to the contrary.

The Pensions Regulator has a similar light touch. It says it cannot endorse or recommend any particular pension scheme, and it “has no responsibility for checking that master trust schemes’ claims are accurate before they are launched”.

Of the master trust providers registered with the Pensions Regulator, only five have currently been given a “kite mark” known as the Master Trust Assurance Framework .

These are the official government-backed scheme, National Employment Savings Trust (NEST); NOW: Pensions; SEI Master Trust; The People’s Pension and Welplan.

The Treasury has also said it is looking at whether supervision of master trusts should be beefed up. It is considering whether there should be an approved list of providers – what it calls a “whitelist”- to make choosing a pension company easier.

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