Master Trust Supervision and Enforcement Policy

Background

TPR is consulting on its draft master trust supervision and enforcement policy, which sets out its approach to regulating master trust pension schemes.

In this response

• General comments
• Supervision
• Enforcement

General comments

We welcome the opportunity to comment on TPR’s supervision and enforcement policy for master trusts.

TPR puts forward an approach, which we support, that favours transparent and ongoing dialogue between TPR and the master trusts it supervises. However, as we set out below, there are some aspects of TPR’s draft policy which we feel would benefit from further detail / clarification, to ensure that master trusts are fully equipped to meet TPR’s expectations.

We have not sought to answer every question in the consultation, but focus our attention on those which are most relevant to our practice.

Supervision

Principles and expectations (sections 2.1 – 2.3)

We are supportive of TPR’s proposed principles for supervision, including the stated approach that TPR will be “engaged and responsive”. This will be particularly important as the new authorisation and supervisory regime beds down.

As some of TPR’s powers rely on subjective analysis, TPR’s expectations need to be made absolutely clear. This is important given the diverse nature of the market, which encompasses schemes of different sizes, as well as both commercial and not-for-profit arrangements. In other words, what is expected from one kind of master trust may not be expected in the exactly the same way from another.

The draft policy notes the expectation that master trusts will be transparent in their interactions with TPR. In return, we anticipate that TPR will need to follow a measured, consistent and proportionate approach with the information it receives. For example, whilst TPR needs to make sure master trusts are aware of its full armoury of powers and when they will be used, we would expect TPR to take a proportionate approach to using those powers. Commercial and political considerations (given the scale and importance of automatic enrolment policy) will also be relevant here. For example, the timing and content of any public statements made about master trusts and their supervision could have a wider impact that goes beyond any particular case. This will be important in terms of encouraging and maintaining regular and open dialogue between TPR and each authorised master trust.

Routine supervision (section 2.4)

We note that TPR intends to interact with master trusts by email, phone and through face-to-face meetings. These will generally be practical means for communicating in a variety of circumstances. Master trusts will be keen to ensure a clear record of their interactions with TPR, particularly in situations where engagement could turn into enforcement activity at a later date. A policy for agreeing what records should be kept and how (as between master trust and TPR) these may be shared between them could therefore be helpful.

Additional supervision (section 2.6)

We note that master trusts which are subject to the most intensive supervision will be allocated a named supervisor. For all master trusts, consistency of personnel at TPR, and a coordinated approach between the different teams within TPR (for example, auto-enrolment, master trust and enforcement teams) will be necessary to ensure a smooth, ongoing relationship between the schemes and TPR. Together with record keeping (as mentioned above), this will help to develop the required degree of clarity and trust between TPR and the different parties involved in running the master trust.

Enforcement

Statutory powers – gathering information (section 3.2)

The draft policy states that TPR “will usually engage in dialogue with schemes on a voluntary basis in the first instance”, but that it “may also request information or documents to be provided […] under section 72 of the 2004 Act”. It goes on to say that “Failure to provide relevant information […] is more likely to lead to fixed and escalating penalties and may ultimately lead to withdrawal of authorisation”.

For most purposes, and outside the master trust context, penalties for failure to provide the information requested are subject to a reasonableness test. Under section 77(1) of the 2004 Act, a person will only be guilty of an offence if they “without reasonable excuse” fail to provide a document when required to do so under section 72. However, there is no equivalent provision under sections 17 and 18 of the 2017 Act. In these provisions, it is a subjective test of whether TPR “considers” a person has failed to comply with the section 72 notice, and therefore whether a fixed or escalating penalty notice may be issued.

It is possible that persons involved with a master trust could be unable to provide the information requested. For example, trustees may not be able to provide information because it is held by a provider. Although the fact that the trustees do not have the information might indicate a failure to meet appropriate governance standards, such a failure could be investigated and penalised, if appropriate. However, in a situation where it is impossible for a party to comply with a section 72 notice, and where it has a reasonable excuse, it could be disproportionate for TPR to impose a fixed penalty in respect of the failure to comply with the notice.

The draft policy currently says very little about how TPR will exercise these powers, including the factors it will take into consideration. This is in contrast to the more general TPR enforcement policy for DC schemes, where TPR has explained its approach to aggravating and mitigating factors. It would be helpful if the draft policy could be expanded to do include an explanation of the circumstances in which TPR would expect to issue fixed penalty notices, together with illustrative examples, and confirmation that TPR would expect to keep requests for information under section 72 reasonable and proportionate, including allowing reasonable time periods for compliance. In addition, despite the absence of any “reasonableness” test in sections 17 and 18 of the 2017 Act, we presume in practice TPR would not expect to issue a penalty notice where a trustee has a reasonable excuse for failure to comply with a section 72 notice, or failure to comply within the set time period. It would be helpful to confirm TPR’s approach in this regard in the enforcement section of the policy.

Pause orders (section 3.5)

Section 3.5 explains the purpose of a pause order, and sets out the some of the circumstances in which TPR may decide to give directions to a master trust as part of such an order.

However, it is unclear what TPR’s process will be in relation to pause orders, for example, which persons would decide whether an order should be issued, and what the decision-making process will involve. It is also unclear whether there is any scope to appeal such an order. It would therefore be helpful for the policy to explain TPR’s process in more detail.