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Five things to consider before you move to a master trust

Choosing a master trust is a huge decision. DC pensions have been going through unprecedented change over the last decade, during which time schemes have had to deal with increasing governance and compliance requirements. Employers seeking to future proof against this uncertainty are increasingly looking to master trusts as a high-quality, low-maintenance solution for their employees.

At Willis Towers Watson, we are having a lot of conversations with employers and trustees who are in the midst of this decision-making process following the implementation of the IORP II legislation.

We expect these additional governance requirements will lead to an increase in cost, time and risk for those who continue to manage a single trust occupational pension scheme. In this article, we discuss some key aspects to think about to help you navigate this new pension landscape.

Here are five things to consider when you’re deciding which master trust is right for you.

1. What is a master trust?

A master trust is a multi-employer occupational pension arrangement whereby each employer has its own   section within the master trust. There is one single legal entity with a single trustee board governing the trust, which is independent of the participating employers – thereby providing the best aspects of a trust but without the governance burden for you.

This trustee board typically has responsibility for investment options, service provision and communicating with the members.

However, there remains an important role for employers who outsource to a master trust. Employers will still be responsible for the contribution structure of their scheme and how the wider reward strategy is communicated, both of which can have a significant impact on savings levels and perceived value.

Master trusts use their scale to give them bargaining power with their providers. Larger schemes are in a strong position to negotiate better deals with their providers, in important areas such as investment and administration. Ultimately this will drive better value for members.

2. Does this master trust’s values align with my company’s?

People choose different supermarkets because they have varying priorities. Choosing a master trust is just the same. There can be huge variations in terms of master trusts’ client care, approach to technology, investment strategy, and much more.

The average member pot size and type of employer is likely to determine the direction of travel for the master trust. Service providers tend to cater for what their average customer looks like. Prospective clients often ask us: would I be a good fit in your client base?

You could also ask the master trust providers you’re considering what other clients they look after. Do those clients share similar values to your own company’s?

As an employer, think about how much of a voice you want to have in your master trust’s future direction. You are likely to have a closer relationship with a master trust with tens of clients than one with hundreds or thousands.

Investment is another area where master trusts differ significantly, both in terms of strategy and philosophy. You may think cheapest is best or be keen to find a master trust with a sophisticated and well-diversified set of investments.

3. What is the master trust’s approach to member engagement?

Trying to improve retirement outcomes in the face of the increasing governance burden arising from IORP II is a challenge we expect schemes to continue to face – but the fact that you’re going to need to comply with the directive anyway presents a real opportunity for companies to re-assess where pensions sit within their overall remuneration strategy. The more an employee engages with their pension, the more they save – so, getting your employees to buy in to the plan is key. It’s important they appreciate the value of what’s been provided to them, and understand that it can be a powerful way to build real wealth.

Every prospective client asks us about engagement: how we do it and how we measure its efficacy. It’s a good idea to ask your prospective master trust providers what metrics they use to measure engagement.

Master trusts can enable pension scheme members to have access to market leading resources that may not be available or affordable in other pension vehicles. These include interactive tools and apps, online self-service platforms and innovative communications approaches using the latest techniques such as personalised videos and nudging.

You could also ask some questions about how the provider engages members. For example, when the member accesses their pension portal, is it personalised? Are there regular communications and nudges making suggestions to the member, or just a letter once a year? Are communications more targeted, with clear calls to action? For instance: “We notice you haven’t filled out your beneficiary form; please could you do that?”

4. What is the master trust’s approach to ESG?

Environmental, social and governance (ESG) issues are becoming increasingly important to employers choosing a master trust.  Interest among members is also growing, and the media is closely scrutinising pension providers. IORP II also requires ESG factors to be considered as part of a pension scheme’s governance framework. Therefore, it’s important to choose a master trust with a consistent and robust approach.

The investment strategy should clearly explain how ESG factors are considered and addressed. It’s a good idea to scrutinise both the trustee’s approach and the corporate message from the master trust, to make sure they are consistent. 

You could also ask your prospective master trust provider: how much of the scheme’s assets are invested in ESG funds?

5. How robust is the master trust’s governance?

With the implementation of the IORP II directive, pension scheme governance is very much front of mind for the Irish regulator; the Pensions Authority. Using a master trust allows key risks to be shifted to a third party. Outsourcing to a master trust mitigates a range of risks, the primary one being that of changing legislation and how that impacts the cost and time needed to run the scheme. Volatile costings such as administration fees will also fall away, if you don’t already use a bundled delegated solution for your pension provision.

Master trusts are increasingly seen as an effective way to outsource pensions while retaining strong trust-based governance. The employer retains control and personalisation of their scheme in terms of design and member engagement.

However, not all master trusts are created equal. The best master trusts take on all the governance burden for the employer, ensuring a high-quality level of professionalism surrounds the day-to-day running of the pension scheme.

Well-governed businesses achieve better outcomes, and the same rationale is true of trustee boards. Look for boards which have trustees from a range of backgrounds with different experience, to ensure cognitive diversity. It is also important that the trustee is empowered to act independently of the overall service provider and ensure that an appropriate conflict of interest policy is in place.

Try to gauge how involved the trustees are. When you speak to trustees, look for consistency: they should echo the responses of the master trust provider’s own employees.

We hope you’ve found these five pointers useful. By using them, you’ll be in a strong position to choose a master trust with values which are aligned to yours as an employer.

If you would like to find out more information about the Lifesight Ireland Master Trust, please feel free to get in touch or download our brochure.

Peter McDonnell APMI, AIIPM,APA


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