Time for the master-trusts to show their investment mettle.


I have a problem with the accountability of master trusts for their investment outcomes.

To my knowledge, only NEST (in Mark Fawcett) has an appointed individual responsible for the member’s investment outcomes. Other master trusts may have internal accountabilities, but I do not know of anyone else that a master-trustee can turn to for a definitive answer. Were I to ask a question about the strategy, philosophy or operation of a master trust investment option, I would expect the question to be answered – after a lengthy delay, via a compliance officer. Any sense of personal ownership of the response is lost in such a process.

This is an important failing. Whether the enquiry comes from a member or an adviser or from someone with a general interest in the investment management of the wave of money coming the trustee’s way, there needs to be someone with authority to answer.

DC investments matter

The investment performance of our defined benefit pension plans is subject to extreme scrutiny. Every basis point of return lost is quantifiable as a sum to be met from the sponsor’s funding plan. Since employers have the means to have an ongoing dialogue with trustees, trustees have become used to analysing the detailed management information needed to properly report. DB investment returns matter because they directly impact the capacity of an employer to go about its business.

But the same cannot be said of the individuals within a DC plan. they have no way of knowing whether their investments are being properly tended and no means of asking for comparative information to benchmark the performance of his or her investments.

The reporting of the CIO of a master trust should not just be to the trustees, but to those people for whom he or she is managing the investment risk and  the long-term return.

It is hardly surprising that members of DC funds aren’t engaged with saving when we give them so little to be interested in. People are very interested in investment matters, the newspapers are testament to that. Numerous surveys from organisations such as Share Action show that – given the opportunity – people will engage with saving the better for knowing what is happening with their money.

And of course a properly managed fund will be able to show how it has reduced risk , improved return and maximised the social utility of the investments in an interesting way.

The need for competition

In a conversation to the recently departed CEO of NOW:Pensions, I listened to a complaint about there being no-one to listen to his fund’s investment story. That conversation was in 2013, when NOW’s investment fund was still in the crawling stage. That fund is now a primary school pupil and growing fast.

I am not the only person interested in how it is going about its business, it has many thousands of participating employers who have an implicit obligation of fiduciary care to their staff , it has over a million members whose pension pots are about to see a spurt in growth as contributions are hiked by auto-enrolment phasing. There may not have been people listening then Morten, but there are people ready to hear today.

The same can be said of the People’s Pension. If it is to live up to its name, it is time that this organisation stepped up to the plate and appointed a proper CIO. Reading its trustee report, and the IGC report of B&CE that lies behind it, I am hugely disappointed.  For all its claims to be an employer mutual, the People’s Pension is little more than a collection agency. It is high time it showed some leadership rather than hiding behind its investment partners, to whom everything seems outsourced.

I have affection for the smaller master trusts, including Salvus, Blue Sky, the Nations Pension, the Pensions Trust and Smart Pensions. Some of these (TPT and Blue Sky) have a heritage of DB which should provide the infrastructure for a proper investment governance operation. Others such as Smart are still finding their investment legs. I have had conversations with the managers and trustees of these organisations.

I hope that they will be able to challenge NEST, NOW and Peoples as innovators. But I do not expect them to have the infrastructure to create the kind of governance that NEST has achieved and NOW and Peoples should aspire to.

Meanwhile, there are the insurers and those master trusts primarily targeting the historic occupational market.

The insurers need to , to raise their game. Their IGCs should be demanding a higher quality of investment reporting than they are getting. I am not sure they always  know the right questions to ask and that when they do, they are prepared to answer them.

As for the new breed of consultancy driven master trusts (those run by Mercer, Aon and Willis Towers Watson), I have little to say. They live in their own bubble and make their own rules. The part of the market they cater for is used to a high standard of governance, but – since they show no interest in the 1m employers, new to workplace pensions, I will park any comment on them.

Showing their mettle

I very much hope that we will see the big three master trusts competing in future as investment organisations. Currently there is no such competition. I hope that by April 2018, all three will have their own CIOs and will have raised their game.

I appreciate that NOW is turbulence but Peoples has no excuse, it needs to get on with things. The master trusts should be leading the way and I fully expect them to do so.

Now is the time for them to show that leadership.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to Time for the master-trusts to show their investment mettle.

  1. Adrian Boulding says:

    Henry I am expecting this to be covered under Pensions Schemes Act 2017 Part 1, Section 7, Paragraph 7 (3) (b)

    DWP are currently developing appropriate secondary regs for this and other sections of the Act and we expect an Autumn consultation

    Hope this helps


  2. Your wish is obviously their command – I see Nico Aspinall just appointed as CIO to B & CE.

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