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Author: Mark Bennett

Five things to consider before you move to a master trust


Choosing a master trust is a huge decision. At LifeSight, we have a lot of conversations with employers and trustees who are in the midst of the decision-making process. In this article, Mark Bennett discusses some key aspects to think about to help you to narrow down the field.

There are 36 master trusts in the UK which are authorised by the Pensions Regulator. It may sound like an overwhelming number, but when you dig a little deeper, clear points of differentiation will start to emerge.

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

1. 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 are huge variations in terms of master trusts’ client care, approach to technology, investment strategy, and much more.

As an example, Go Pensions publishes a master trust league table which includes some key metrics, including number of participating employers, number of members and funds under management.

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 trusts 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. The DC Investment Forum’s Growing Pains research will give you an insight into how master trusts’ investment strategies differ.

2. How big is the master trust?

Master trusts have had varying degrees of success in gathering assets. Scale of assets is important in several ways.

First, achieving scale is how master trusts ultimately achieve their income, making them sustainable. Master trusts are expected to further consolidate over the coming decade, so the larger ones are less likely to be swept up by other master trusts.

Second, 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.

3. 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. Therefore, it’s important to choose a master trust with a consistent and robust approach.

You could examine documents such as the trustee chair’s statement and the Statement of Investment Principles (SIP) to get a better idea of the trustee’s approach. They should clearly explain how they consider and address ESG factors in their SIP. It’s a good idea to scrutinise 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: how much of the scheme’s assets are invested in ESG funds?

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

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 trusts what metrics they use to measure engagement.

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?”

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

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.

You may think it’s a no-brainer to look for pensions expertise on a trustee board, but at LifeSight, we employ plenty of pensions experts, so we also look for trustees from different industries to bring their broader perspectives.

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’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 LifeSight, please feel free to get in touch.

Mark Bennett

LifeSight Sales Director

mark.andrew.bennett@willistowerswatson.com

Phone: +44 (0)20 7170 2161

Mobile: +44 (0)734 209 2672