Master trusts and contract-based pension schemes may be engaged in battle, but they are both for the broader good, says Richard Butcher, managing director of PTL
My 14 year old recently took me to see the latest superhero blockbuster: Batman vs Superman. As I was immersed in the 3D CGI action my, frankly at that moment unchallenged, mind began to wander: Shakespeare it is not.
This is no plot spoiler but if, like me, you were wondering; “I thought they were both good guys, so why are they fighting?”, let me give you a brief synopsis. Batman is concerned that Superman is becoming untouchable. While benign now, what if he were to become evil in the future? How would mankind resist him and his super powers? The consequence of this chain of thought is that Batman decides he needs to take on Superman and defeat him. A battle, glorious in destruction, inevitably follows.
I’ve noticed that a similar battle, albeit significantly more subtle and less destructive, has been taking place by proxy in the trade press of recent past. The protagonist (the batman character) in this case being the supporters of contract based pension schemes.
Master trusts, Contractbasedman argues, are flawed by comparison to themselves. The flaws stemming from the fact they are not subject to financial regulation.
A contract based pension scheme (what used to be known as a group personal pension and is now known as a workplace personal pension) can only be set up by an insurance company which is subject to supervision from the Prudential Regulation Authority (whose principle function it is to promote the safety and soundness of firms) and the Financial Conduct Authority (who ensures firms are run with integrity, can be trusted and offer appropriate products). A master trust can be set up by any Joker, Lex Luther or Riddler.
As a result, the providers of master trusts, it is argued, are not, for example, subject to checks on their solvency, their ability to trade or their honest or integrity. They could simply be baddies in exaggerated costumes out to take over the world and fleece pension savers in the process.
This is, however, a simplification.
The majority of master trusts have been set up by providers who are indeed subject to financial regulation: insurers, investment managers, firms of consultants, albeit there are a few exceptions (NEST for example, although no one serious is suggesting, so far as I’ve seen, that NEST is trying to fleece anyone – even though a few are concerned by its financial model). As such, they are in the normal course of their operations subject to supervision and the evidence I have seen shows their regulators are not being backward in coming forward in relation to these master trusts. They are asking questions, they are intervening.
In addition, the master trusts all have to have, by law, a trustee board made up of a majority of, and chaired by, independents – and most of these people (or firms) trade on their integrity and professionalism. The evidence I have seen, again, shows that these independents have not been backwards in coming forward. They are challenging the sponsors of the master trusts they run to be better.
They are also, the master trusts, all within the jurisdiction of the Pensions Regulator – a regulator clearly in tune with the risks that master trusts represent.
All of this said, there are some master trusts that aren’t well run and benign – but then this is also the case for some contract based providers. In reality the pros and cons of each are far more subtle than has been presented in the trade press debate. There is good and evil in both concepts. The trick, for the sponsors, the regulators and the politicians will be to share the best from both.
If that happens, our superheroes will realise, no doubt after a dramatic battle, they are on the same side – the side of good pensions and good pension outcomes.
Now, where are my tights?
Richard Butcher is managing director of PTL