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Author: Fiona Matthews

Considering a master trust model? An FD cribsheet

There are three key factors when considering if a master trust is right for your organisation for someone in a finance role:

  • Cost
  • Risk
  • What does a master trust look like as an employer or employee?

This blog endeavours to work through these points as clearly as we can, noting that master trust arrangements will vary across providers.


The best master trusts are endeavouring for best in class practice, drawing on economies of scale in all areas, but in particular the financial terms – investment and administration fees. This scale is what makes master trusts viable as they manage a larger volume of people and assets, which ultimately aims for cheaper, better, smarter options for its members.

To put this into numbers, our data tells us that large employers currently spend on average around £100k-£150k per annum on communications (excluding postage costs), £100k-£200k on investment advice and £15k-£40k on each individual trustee. That’s without the most significant spend, administration, which can equate to around £175k-£320k. Altogether, it’s no surprise to see amounts as much as £750k being spent by the larger employers on running their pension scheme every year. When compared to the low running costs of a master trust, where members meet the costs and employers pay for none of the items listed above, this is a startling difference.


Outsourcing allows the day to day risks, as well as larger ones, such as changes in legislation to be taken off the table internally and placed with a provider. A master trust will be responsible for the appointment of trustees, the administration of the scheme, maintaining legislative compliance, communicating with members and reviewing the investment strategy.

Most UK master trusts use an insurance policy to invest members’ assets. These are segregated from the investment platform and held with a custodian – protecting members assets from the investment platform’s failure. Should the insurer itself fail, most arrangements should be covered by the Financial Services Compensation Scheme, again confirming the credibility of such offerings.

The recent announcements made in the Queen’s speech make it clear that steps are being taken to ensure sustainable master trusts enter the market and that the Pensions Regulator will have additional powers over master trusts. The concerns having arisen that some of the smaller players entering the market, without suitable financial backing, may leave the costs on a wind-up falling on the members.  A reputable master trust should be able to provide you with reassurance through a discontinuance plan or other mechanism to protect against such an event.

It will take some time for the Bill to be passed through Parliament, so in the meantime, when looking for a suitable master trust, you should look for those with industry-recognised accreditations, such as the Master Trust Assurance Framework (MAF), or PQM Ready status, and do robust due diligence on their governance structure. Having a truly independent board of trustees in place is an important factor in reassuring decision makers. These go a long way to promoting best practice around charges, governance and communications.

What does a master trust look like as an employer, or employee?

As explained above, moving to a master trust is a full outsourcing solution for a pension scheme. The key difference is a shift and consolidation in who is carrying out the work for pension scheme members. The move need not have any impact on the contribution structure and design of the scheme, which remain Company decisions.

It will be up to the Company to negotiate and get comfortable with any changes to the member experience. Many master trusts allow you to personalise and brand member communications which will all smooth the transition.

However, it is worth noting if you are considering a move from a single employer trust to a master trust that an amount of project management and good working relationships with the parties involved will all help to make the transition as painless as possible, as the process can take 6-12 months.

And one other point… What would you choose if you were starting from scratch?

Our experience of working with clients is that the barrage of recent regulation and legislation, from auto-enrolment to the new pension freedoms and governance requirements are building to a point that many trustee boards are struggling to balance the demands placed on them with being comfortable offering the full range of flexibilities.

The costs of providing access to drawdown arrangements can be prohibitively expensive with a single employer trust, and the consequence of offering it is that the trust is responsible for the member until date of death, rather than retirement date. This has an impact on the cost, communications, investment strategy and governance remit of the plan. In reality, few single employer schemes are offering the range of flexibilities.

In addition, with the introduction of LISAs, post retirement market developments (such as deferred annuities for pensioners in drawdown) and rumours of changes to pensions taxation on the horizon, managing a pension scheme has become more complicated and the remit wider than was likely envisaged when single employer trusts were established. Through a master trust, you can offer members full flexibility in a way that may not be practical with your current pension provision and offload the risks of changing legislation. 

What it means for finance

Finance professionals and FDs in particular, have an important role to play in influencing what kind of pension provision their organisations offer employees. Master trusts can provide huge benefits in terms of reducing risk and costs for employers. They also offer significant benefits in terms of good governance, economies of scale for lower costs and better investments, flexible employee communications and drawdown options for employees.

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