Thousands of people who have been enrolled into a pension scheme at work could lose all their savings. The Pensions Regulator says the problem lies in the fact that some 'master trust' pension schemes may be too small to survive, while some may be being run by people who are not up to the task.
The regulator revealed concerns to the BBC, explaining that the pensions causing concern are known as 'master trust' schemes: centralised funds for employees at a number of companies. These are popular among employers with fewer than 30 members of staff, who had to comply with the government's auto-enrolment rules, and used these schemes as a way of meeting their obligations cost-effectively.
At the moment, around four million people are enrolled in around 80 'master trust' schemes, although not all of them are a cause for concern.
Part of the problem is that there are so many schemes that many of them will never attract enough money to be profitable. This raises the risk of failure, and there's no safety net in place in some schemes to protect the money in them. Andrew Warwick Thompson, executive director for regulatory policy at the Pensions Regulator, warned: "There is a risk of these schemes falling over; there is a risk that members might lose their money."
The second issue is that they are not regulated by the Financial Conduct Authority, but are overseen from a distance by the Pensions Regulator - which doesn't have any power to check how the pensions are sold or shut companies down who fall short of basic standards.
Anyone setting up a master trust doesn't need any qualifications or any assets, they only need to be a 'fit and proper person'. Warwick Thompson said that these schemes "may not be run by competent people".
What can you do?
In the medium term, the government is working on better regulation of these companies. Investment and Pensions Europe reported that Harriett Baldwin, economic secretary to the Treasury, told the House of Commons that regulation would be published "as soon as practically possible", and indicated that the regulation has already been drafted.
In the meantime, it's up to your employer to check they their pension provider is up to the task. Kate Smith, Head of Pensions, Aegon, said: "Employers need to make sure when auto-enrolling employees that they are using a scheme which is safeguarded by regulators. They can safeguard their employees' pensions by choosing a group personal pension schemes or a mastertrust run by an FCA regulated insurer. However, employers should be very wary of mastertrusts offered by firms not subject to regulation. If an unregulated mastertrust fails, potentially employees could lose all their pension savings."
If you work for a smaller employer, therefore, it's worth talking to whoever deals with pensions, and checking the details of the company running your auto-enrolment scheme. Warwick Thompson emphasised that anyone in a pension that's regulated by the FCA can be confident their money is safe.
If it's a master trust arrangement, it's worth checking the company behind it, and whether they are FCA regulated. If not, check if they are one of the five that are part of the Master Trust Alliance Framework (which means they are independently audited): National Employment Savings Trust (NEST); NOW: Pensions; SEI Master Trust; The People's Pension and Welplan.
If your employer picked an alternative company, they need to be able to adequately answer your questions on how they can be sure your money is protected. If they have no idea, it might be worth talking to a professional about whether it's worth saving for retirement elsewhere.