The Big Question: How will the regulator’s transparency drive impact adviser master trusts and vertically integrated pension providers?

Pete Glancy smallScottish Widows head of industry development Peter Glancy

Explicit charges, as described in the charge cap, will be shown to be the tip of the iceberg.

When these extra levels of charge are disclosed, we could get another big round of ‘rip-off’ pension fund accusations.

We believe fund managers will be mandated to disclose information that is currently not being handed over.

Some in the distribution space are setting up products like master trusts so they can take a charge from the fund. If you are an EBC making money opaquely now, you will not be able to in the future.

On the investment side, some providers find they can make more money out of the fund management because it is more opaque than the product wrapped. But vertically integrated participants could well be forced to specialise within a chosen element of the value chain.

Pensions are excluded from Mifid II and Prips. So the DWP wants to create a similar regime for pensions. It has asked the FCA to develop a framework where they disclose the previous 12 months’ charges and those they anticipate levying in the future. These include opportunity costs of stock lending, property renovation, maintenance and insurance costs, stamp duty on equity trading, brokers’ fees, spreads in bond markets and opportunity costs of inefficient execution.

Jamie Jenkins smallStandard Life head of pensions strategy Jamie Jenkins

There is not room in the market for 80 or so master trusts to operate efficiently.

There is clearly a concern from regulators that there are a large number of very small master trusts, and that some will be unsustainable longer term. Some of the regulatory changes ahead may prove to be too much for some of them to undergo. Any failures would then result in problems for those members and could undermine confidence in pensions.

However, the larger master trusts are competing effectively and the market benefits from a diversity of models. Vertical integration can improve the efficiency of the model and such savings can be passed on to members. What matters is not the underlying business structure, but the level of governance carried out to ensure that the master trust is run in the interest of members.

I do not recognise these comments with regard to vertically integrated providers. There is a general acceptance that both models can be suitable. I have not heard anything from regulators or government suggesting an issue with vertically integrated pension providers.

The hurdles that have been introduced to the master trust world – whether it is the extension of the duties of master trust boards, or the independent audit set up under the banner of The Pensions Regulator and the Institute of Chartered Accountants of England and Wales, with the specific aim of giving assurance that master trusts are being run well – are designed to address any concerns around transparency and conflicts.

These hurdles will create pressure for smaller master trusts to merge.

Note that Standard Life’s primary auto enrolment solution for smaller firms is contract-based

Steve Herbert smallJelf Employee Benefits head of benefits strategy Steve Herbert

Many of the smaller master trusts have clearly been set up as an alternative to commission.

There are definitely examples of master trusts that have been created for the right reasons, and these are sound, solid structures that should not be concerned by regulatory action.

But there are also many that have been set up to fill a space that has been created by the sun setting on commission on workplace schemes. These schemes do not appear to have been produced with longevity in mind, and I think they are already on the radar of the regulator and will have to disappear or change because of the regulatory action likely to be coming down the line.

Such schemes have been created in part to meet the employers half-way – to help them avoid having to pay fees to the adviser for ongoing support. That is understandable but goes against the grain of the regulator’s policy drive. They are a temporary thing that will be flushed out in the not-too-distant future.