TPR publishes master trust assurance framework

Introduction

Following a consultation in 2013 (please see our Alert), on 1 May 2014 TPR published a master trust assurance framework which aims to enable trustees of master trusts to demonstrate to employers that their scheme is managed to a high standard.

Key points

There is no standalone legislative or regulatory standard to which master trusts specifically need to operate.
TPR and the ICAEW have developed a voluntary assurance framework for master trusts.
Trustees of master trusts would be expected to apply “control objectives” to evaluate and report on their own scheme’s governance and administration.
The “control objectives” are aligned with the DC quality features identified by TPR.
Independent assurance of compliance is provided by an accountant’s/auditor’s report.
TPR expects master trusts to provide their first report in accordance with the framework for periods ending in the financial year 2014/15.

Background

The success of automatic enrolment depends on employees being enrolled into quality schemes which deliver good member outcomes. TPR has formulated 31 DC quality features which build on TPR’s six principles for good quality DC schemes. They represent the standards and behaviours TPR expects DC trustees to attain.

TPR’s DC code of practice (the Code) and guidance for occupational trust-based schemes are intended to assist trustees to implement the quality features in their scheme.

Master trusts

Master trusts are occupational trust-based schemes which can manage the pension investments of many individual companies, and their employees, within a single entity.

As occupational pension schemes, master trusts which offer DC benefits need to comply with the Code. TPR has developed the assurance framework to make sure such schemes are set up by people who have the competence and financial resources to take care of people’s pension savings adequately.

To assist employers’ selection of an automatic enrolment scheme, a list of master trusts that have obtained independent assurance will be established and maintained by TPR.

Assurance framework

The assurance framework aims to help trustees to demonstrate to potential and existing customers (employers) that their scheme meets high standards. Although the framework has been developed specifically for master trusts, TPR notes that other DC schemes might want to adopt it as good practice. The suggestion of wider usage ties in with the DWP’s recent command paper on “Better workplace pensions” (please see our Alert) which suggests that independently audited annual reports will be required from the governing body of DC schemes when new minimum governance standards come into force in April 2015.

Under the framework, trustees would prepare a written report setting out their responsibilities and describing the procedures in place to meet the “control objectives”. The accountant or auditor would then provide an assurance report on those procedures, to enhance the confidence of trustees and current and prospective scheme users. The framework notes that suitable control procedures will vary from scheme to scheme.

Control objectives

The “control objectives” are listed in an appendix to the assurance framework. For example:

Cash is safeguarded and all payments are suitably authorised and controlled.
A value for money review is undertaken and documented, approved and actioned.
A complete and accurate list of the types of costs and charges incurred by members and employers is documented, monitored and approved.

The rationale for and risks addressed by each objective are also listed in the appendix, together with the DC quality feature to which the objective relates.

The list of objectives is not intended to be exhaustive. It remains the responsibility of the trustees to ensure that their governance and administration procedures are sufficient to meet TPR’s standards (as set out in the Code). Further, trustees need only evaluate their procedures against the objectives to the extent that they are relevant to their master trusts’ activities. Where certain objectives are not included, the trustees would be expected to explain this in their report, giving the reasons for the omission.

Next steps

TPR expects master trusts to provide their first report in accordance with the framework for periods ending in the financial year 2014/15 and has issued specially tailored versions of its assessment template and governance statement for this purpose.

Trustees of master trusts should consider whether they wish to engage with the framework and, if so, take advice on how best to proceed.