The Work and Pensions Select Committee has argued that "gaps in pension regulation have allowed potentially unstable master trusts onto the market", which could undermine the success of auto-enrolment.
The Committee believes that "should one of these trusts collapse, there is a very real danger that ordinary scheme members would lose their retirement savings".
The Pensions Minister and the Pensions Regulator have both backed the introduction of a Pensions Bill for stronger regulation of master trusts.
DWP is also concerned that the introduction of the Lifetime ISA could also jeopardise the success of AE, stating that "the Treasury and the Department for Work and Pensions appear to have different views over whether it is a pension product or not".
The Committee continued:
"Some young people may opt-out of AE in order to save in a LISA, leaving themselves worse off in retirement. Furthermore, the LISA is due to be introduced at a time when the majority of small businesses will still be to move on to AE and statutory contribution rates will be yet to rise. The Government should make it clear that the LISA is not a pension. It should also conduct urgent research on any effect of the LISA on AE and report on this before the 2016 Autumn Statement."
However former Pensions Minister Steve Webb has warned that the Pensions Bill risks being a ‘missed opportunity’ if it is too narrowly focussed.
He believes there is a wide range of pensions issues that could be improved by new legislation, including action to ensure that the 10 million people being automatically enrolled save more than the legal minimum of 8% of qualifying earnings, and new rules to force pension schemes and pension providers to supply data to a ‘pensions dashboard’.
Webb added:
“Automatic enrolment has got off to a great start, with six million more people now saving into a workplace pension. But a number of legislative changes are now needed to build on that success. For most savers, the legal minimum of saving 8% of salary by 2019 will not be nearly enough for a comfortable retirement. Legislation is needed now to make sure that people put a little more into their pension each time they get a pay rise. Measures are also needed to tackle the pensions crisis among the self-employed, who have been excluded from automatic enrolment.
“Whilst the Government’s plans to legislate to protect savers in small Master Trust arrangements are welcome, this Bill could be a missed opportunity if it does not address some of the more fundamental issues of inadequate pension saving.”
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, commented:
“The UK’s workplace pensions sector is crying out for consolidation. There are tens of thousands of defined contribution schemes, thousands of final salary schemes and dozens of master trusts in the UK; this is a lot too many.
"Looking after individuals’ retirement savings is a responsibility which demands robust safeguards and controls. The process of setting up and running some types of pension scheme, such as master trusts is very light, with relatively little scrutiny of the individuals involved or the financial resources standing behind them. Recent high profile final salary scheme problems illustrate that the governance of workplace pensions generally is in need of review.
"This would be an opportune moment to raise the bar on workplace pension standards generally and to reassure the public that their retirement savings are in safe hands.”
