Master trusts are trailblazers in terms of the standard and quality of governance, The Pensions Regulator (TPR) executive director David Fairs has said, and that the regulator would like to see master trusts ‘go further’ and lead the way with implementing ESG, at-retirement product innovation and trustee board diversity.

Speaking at the Pensions Age Western Conference yesterday, Fairs highlighted that a recent TPR survey found 71 per cent of members are in pension schemes that are meeting all the expected governance requirements, an increase from 54 per cent the previous year. “A large part of that is the master trust authorisation process, which has driven up standards in that area,” he said.

The regulator is nearly at the end of the master trust authorisation process, Fairs stated, with 35 master trusts currently authorised and 45 having decided to exit the market.

“Once a master trust is authorised that’s not the end of the game,” he added. “They will be subject to one-to-one supervision. The knowledge and insight we have had from the authorisation process we take forward to that supervision. Even where schemes are authorised we’ve noticed areas where they could improve on.

“The high levels of governance we can see with master trusts does mean to some degree that master trusts are trailblazers in terms of standard and quality of governance.”

But the regulator does not want them to stop there, he added.

“We would love them to fully embrace approaches to tackle climate change and ESG, look for innovation within at-retirement products and because of the size and nature of their membership, we think they could also be leaders in promoting diversity within a trustee board,” Fairs said. “Getting young people on trustee boards we think would be a great thing to do.”

A Willis Towers Watson (WTW) survey last month found that trust-based DC schemes are far more likely to consider implementing ESG filters in their default funds than their contract-based counterparts.

WTW's 14th FTSE DC Pension Scheme Survey found that 69 per cent of contract-based schemes do not focus on ESG in their default funds, as opposed to 33 per cent of master trusts and 18 per cent of trust-based schemes.

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