Who does what under a master trust arrangement?
For many organisations, looking to outsource their pension provision to a master trust makes good business sense. Organisations can dramatically reduce the day to day responsibility, workload and burden of risk that they would otherwise have to take on themselves.
One question that comes up regularly in our conversations with clients and prospects is understanding what a move to a master trust actually means on a day to day basis. They are keen to know how their responsibilities will change under LifeSight, and furthermore, who has control over what.
Master trusts can be seen as offering a middle ground between a single employer trust and a contract-based arrangement. It is this positioning on a spectrum that means the answer to who does what can vary between different master trusts.
In this blog, I highlight the key areas where employers retain and relinquish control under a master trust, including where any variability may lie.
The master trust will be responsible for:
- The governance structure, the appointment of trustees, obtaining accreditations (e.g. MAF), facilitating the auditing of the scheme and drafting of the accounts.
- Selecting the fund range and default fund.
- Any regulatory compliance affecting the pension arrangements – both currently and in future when there are changes in regulation.
- Communicating to members about their benefits and options.
- Administering the pension scheme for members, processing member investment choices, making drawdown payments, maintaining contact details, etc.
- Providing the employer with management information summarising the performance of the scheme administration against agreed service levels as well as statistics on activity levels and the choices being made by their members.
The employer will be responsible for:
- Setting the contribution structure – the amounts employees and the employer pay, the extent of any matching, etc.
- Deducting member contributions and paying employer contributions for members to the master trust.
- Meeting auto-enrolment requirements (many master trusts will support employers with meeting this obligation).
- Communicating the pensions package as part of the overall remuneration structure to employees – both to new joiners and on an ongoing basis.
- All other regulatory compliance affecting the employer.
As can be seen from the list above, master trusts assume much of the daily responsibility of administrating and managing the fund, communicating with members and ensuring it operates in accordance with the latest guidance and regulations. By transferring to an outsourced pension provision, employers’ day to day risks of running the scheme are passed over to the master trust to deal with. Most administration, management activities and costs will go with it. For many organisations, this is a major factor that attracts them to consider outsourcing their pension scheme to a master trust.
Exactly how much responsibility is transferred across to the provider can vary by master trust and even within master trusts depending on the agreement employers reach with the provider. Many employers still want to retain some control. With control comes responsibility, and we see a range of organisations considering this balance. Some may prefer to take full advantage of a comprehensive outsourcing solution, and if they are happy with the master trust’s administration processes, investment choices and communications strategy, will not see a need for anything further. Others may prefer to have a more direct influence in some areas, for example by providing additional workshops for members approaching retirement or offering advice packages.
Often employers will want a degree of control over communication to members. The ability to do so and the facility to rebrand/co-brand to that of the employer will vary significantly between different master trusts so it is important for employers to explore this aspect before choosing a provider.
For those employers who want to keep well-informed regarding the master trust into which they have moved, some master trusts, such as LifeSight, offer employer forums for participating employers. These enable a two-way information and feedback exchange, encouraging a shared dialogue on the master trust’s future strategy and evolution plans and overall reporting on governance.
In summary, outsourcing pensions can reduce risk and day to day workload, responsibilities and management and administration costs dramatically, while also allowing employers to retain control over certain elements, such as branding and communications to members. In this way, employers can retain some influence over their scheme while leaving master trusts to deal with most of the risk and administrative burden. It’s important that organisations identify their priorities when outsourcing and appreciate the areas of flexibility that the master trust provider can offer. This enables employers to bring together a pensions solution that meets their needs and offers the required level of delegation.