Management quality: strong
Employer involvement: low
A master trust is a multi-employer trust-based scheme. The pension itself is run by a third party. A trustee board, separate from the pension provider, ensures that the scheme is being managed effectively. Crucially, the trustee board is usually comprised of independent professional trustees or industry experts – no representatives from each employer’s organisation are involved. As such, it marries together some of the convenience benefits of a GPP, with some of the governance benefits of a trust-based scheme.
Although master trusts are nothing new, auto-enrolment has given them a new lease of life. They are gaining in popularity as a solution for auto-enrolment, and the last two years has seen the number of schemes on offer mushroom.
Given that employers are not required to get involved with running of a master trust, it is akin to a GPP in terms of ongoing time commitment. However, the addition of an independent trustee board should give employers greater reassurance that the scheme is being well run.
“Master trusts are being recognised as a good model for mid-sized companies,” says Morten Nilsson, CEO of NOW:Pensions. “It won’t be the only model, but I would expect to see master trusts becoming more significant, and GPPs less so.”
Master trust: Pros and Cons
- Better governance than a GPP because it uses a trustee board
- Little time commitment required from the employer in terms of ongoing management
- May offer lower charges, due to the economies of scale of many members in a single fund
- May be more limited than a GPP in terms of tailored investment options, for example
- Little room for negotiation on aspects such as annual management charges
- Employers will need to be confident that the master trust’s trustee board is sufficiently independent from the pension provider to provide ongoing good governance.
Key questions for master trust providers
- How does the trustee board operate in relation to the master trust provider – is it truly independent and how will it remain so?
- What options are there (if any) for tailoring the master trust’s offering to the needs of an individual employer? For example, can communications be branded with the employer’s logo and targeted messages?
- If my company decides to split its pension provision, so that some of the company uses the master trust and other parts use a GPP, how might this work? Will it be suitable for all our staff: is there flexibility to offer different options to different pay grades/levels of seniority, for example?
- How will the master trust connect up to our payroll and HR systems? Is there any support available, and what other additional costs might be involved?
- Who provides them?
- The master trust market roughly splits into two camps: providers that deal directly with employers to set up a solution, and insurer/other providers who work through benefits advisers and IFAs.
Master Trust Providers
Three low-cost providers battling to attract lower earners
The National Employment Savings Trust (NEST) is a government-sponsored master trust pension scheme, ostensibly set up to help employers fulfil their auto-enrolment obligations. The fact that it is government – sponsored means that it has some characteristics unlike any of the other schemes and providers discussed here:
- It is not allowed to turn down any business from any provider
- At present, it has a cap of £4,200 on the contributions it can take in for each member each year. However, this may be reviewed in future
- It is not allowed to accept ‘transfers in’ from other schemes. In other words, if you transfer your employers from a scheme run by another company into NEST, your members will not be able to transfer their existing pensions pot into NEST.
- The total charges for the scheme each year include a 1.8% annual charge for members that will remain until the government loan used to set up NEST has been paid, in addition to annual running cost charge of 0.3%.
NOW: Pensions is a newcomer to the UK market, but backed by giant Danish pensions provider, ATP.
- Like NEST, NOW:Pensions has a trustee board of individually appointed industry experts – including former shadow minister for pensions, Nigel Waterson.
- One interesting recent development for NOW:Pensions has been its decision to offer optional life cover alongside its pensions, through a deal with insurance provider Ellipse.
- NOW:Pensions charges each member £1.50 a month for membership, plus 0.3% per year investment management fee.
THE PEOPLE’S PENSION
The People’s Pension is run by B&CE – a long-standing provider of workplace pensions to the construction industry. Under the B&CE brand, it handles the pensions of 1.6 million people.
- The People’s Pension is a new master trust set up specifically for auto-enrolment by B&CE and is due to launch formally on 1st October 2012.
- It has an annual management charge per member of 0.5% which includes all costs and charges. Like NEST, it is targeted at low earning employees
- B&CE has announced two trustee directors – experienced independent trustees Alan Pickering and Steve Delo, plus the use of PAN Governance LLP, an independent trustee company.
MASTER TRUSTS FROM OTHER PROVIDERS
Most other master trusts will be accessible only through an employee benefits consultant. Most of these use the services of a professional independent trustee company, rather than a bespoke trustee board of named individuals. Some other major providers include:
- Legal and General – WorkSave Pensions Trust
- Standard Life – Defined Contribution Master Trust
- BlackRock – BlackRock Master Trust
- Xafinity – National Pension Trust
- Goddard Perry/HS Admin – The Pensions Master Trust
- SuperTrust – Managed DC.