Industry unconvinced by MPs' funder of last resort concerns

Another amendment requiring annual reporting on the costs of administration, transactions and fund management, and the cost of retirement products, was also rejected.

However, industry experts did not share the MPs’ concerns, saying a funder of last resort would be unnecessary and could even put undue strain on some schemes covered by the legislation.

Despite the disagreement between parties, spokespeople for Labour and the Scottish National Party welcomed the general aim of the bill and did not block its passage.

Amendments could have worsened bill

Opposition parties had pushed for a funder of last resort to be set up in the event that a mastertrust became insolvent. “I would have been happier if the government had accepted some of our amendments,” Ian Blackford, MP and pensions spokesman for the SNP, told the house, but called the bill an “important step forward”.

Andy Cheseldine, defined contribution partner at consultancy LCP, explained that multi-employer defined benefit schemes with DC sections were what he called “accidental mastertrusts”, caught up in the legislation.

For those schemes, which are often set up by employers in not-for-profit sectors, the increased cost introduced by the bill is already material, and accounting for the wind-up of the scheme to satisfy a funder of last resort would increase this further.

“Typically there’s a deficit in the DB section... a funder of last resort would have been too much,” said Cheseldine.

The bill leaves a lot open to the interpretation of both the Department for Work and Pensions and the Pensions Regulator, meaning provisions could be made in the event of a mastertrust insolvency.

Darren Philp, head of policy at mastertrust The People’s Pension, said some concerns remained about schemes collapsing. “If you’re in that forced wind-up scenario, ultimately it’s members’ pots that could end up suffering,” he said.

However, he expected that many major schemes would be prepared to take on books that were not particularly attractive in commercial terms, in order to uphold the sector’s reputation.

Action needed on transparency

Philp argued that introducing mastertrust-specific requirements on transparency would run counter to the objective of increasing standards across every scheme and provider.

“We’ve been talking about this for too long,” he said. “We just need to get on with it now and the regulators sort of need to get a grip and agree the methodology.”

Ian Neale, director at policy specialists Aries Insight, said the prospect of member representation on boards was unrealistic and of limited use.

“The mastertrusts by definition have members from a huge variety of employers... so the interaction between any particular member and a member representative might be extremely tenuous,” he said.