Master Trusts: what's going on?
Anyone reading the pensions press lately will have noticed that the Master Trust authorisation application framework has evoked the use of 'natural disaster' metaphors such as tsunami, stampede or similar. The terms have been used to describe the number of applications expected for authorisation before the deadline at the end of March, but should we expect other flurries of activity?
Are these the right metaphors to use?
Firstly, it’s easy to use the metaphors above for the high level of activity going on in this market at the moment, and I’m sure The Pensions Regulator will feel the full force when assessing each master trust application over the next few months. However, I don’t think the change in the market should be compared to a natural disaster, but rather seen as a catalyst for positive change. Now, as many of my colleagues will tell you, I’m the least likely person to come up with a poetic metaphor, but I see this more as a garden in spring with its early blossom in the workplace savings world.
So, what’s in this blossoming garden?
Reassurance – All Master Trusts will be subject to a rigorous framework and checks on a six-monthly basis. This will give employers and employees greater comfort that their pension savings are being well looked after. The consolidation in the market will also provide economies of scale and the competitive drive to develop further the member experiences and support.
Opportunity – The new framework gives employers and trustees of smaller defined contribution arrangements the opportunity to check their pension scheme against authorised Master Trusts to make sure they are providing the best solution for their members. Authorisation is the first or second step in the journey of providing greater options for Trustees of smaller arrangements to consolidate into master trusts if it’s in their member’s interests.
Choice – shorn of the proliferation of Master Trusts that developed because of the growth of pensions through automatic enrolment, the market will become more clearly defined, creating real choice. We’re starting to see three distinct types of master trust which suit different employer and member needs, with good providers in each group:
Auto-enrolment – designed to support large numbers of small pots and a reasonable price. Few bells and whistles.
Provider propositions – an off-the-shelf approach with some tailoring designed for the mass market
Consultancy proposition - incorporating wider aspects of employee finance and financial wellbeing but often at an additional cost
So, despite the inevitable contraction it’s not a one size fits all market. In turn, this gives employers the opportunity to pick a scheme that works for them without going to the two extremes of a “hands-off” insurance contract or a resource-absorbing own trust.
Are there any weeds to pull?
There certainly are a few weeds to pull. Authorisation will shrink the Master Trust market greatly (although maybe not as far as we first thought). This has already resulted in 8 Master Trusts exiting and another 30+ planning to. Members in these schemes will be replanted into the remaining ‘beds’ (schemes) in this blossoming garden over time, improving their position. If you’re in one of these exiting master trusts it’s a good time to review and decide on the future.
At the moment, the market also contains a lot of small single-employer trusts that don’t get the attention members deserve due to limited resources, being legacy arrangements or employers not realising the risks involved with these schemes. Authorisation gives employers the opportunity to step back and really consider the value and cost of these schemes and move members to somewhere they should be able to flourish. Now must be the time employers and trustees consider the ‘double benefit’ of reducing the employer’s risk and improving member outcomes.
What’s next for us?
I think I’d be stretching the metaphor to its limits by referring to all of us involved with workplace pensions as the new 21st century gardeners but, as with gardening, there is certainly a lot to think about.
Some of the key questions we would expect to be raised are:
We currently support our own trust but is this still the most effective way to use our resources and support employees in saving for retirement?
It's time to understand our options.
Human Resource Director:
It's increasingly important that our employees value our workplace savings as a benefit. Do we currently provide the best value to employees that we can?
Although we provide a good scheme to our members, would the scale of a Master Trust better support member outcomes? We should engage with the sponsoring employer on what's in members' best interests.
I want to view and manage my pension scheme information online. I want a well looked after and secure scheme. I want support with making decisions as I approach retirement. Who is going to give me this?
If you want to discuss the options for your pension arrangement, speak to us.