A good day for master trusts

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Small DC schemes, bumped off the road.

The FT run a scoop this morning, predicting that today the Pensions Regulator will withdraw its proposals to require small DC plans to be run by “professional trustees” and urging  that most of the 8000 single occupational trust based DC plans merge with larger schemes.

The consultation response, due out today

This is a rare and happy case of the Pensions Regulator listening to the market. TPR’s original idea was to fly in professional trustees to run small occupational DC plans but it has now worked out that there are too few of these trustees to go round. In my experience there are very few pension professionals capable of governing DC plans which are a very different beast to manage than the Defined benefit schemes which are what PTs do properly.

Employers who wish to maintain self-determination in their DC plans will find that increasingly hard. Opportunities to self-manage investment strategies as participating employers within master trusts depend on the scale you bring to the trust; Tescos yes, the Frying tonight fish and chip shop- no. Similarly insurers are increasingly wary of advised defaults within their GPPs.  The proliferation of “best ideas” defaults that seemed such a good idea twenty years ago is now being reversed as advisers withdraw and IGCs and GAAs question the value that advised default investment strategies bring to members.

A good day for master trusts.

While the bulk of the 29,000 occupational DC schemes overseen by tPR are there for the interests of the owners of owner managed businesses (and are unlikely to be impacted by this), there are sufficient members and assets in the rump of single occupational DC plans to make an appreciable difference to commercial master trusts.

The smaller plans like Creative’s, Salvus and the Nations Pension are driven by entrepreneurial business people who will drive change through at the bottom end of the market. The larger consultancy owned mastertrusts  –  offered by Mercer, Aon and Willis Towers Watson (and to a degree Capita) will pitch to the larger occupational pension schemes.

All of the above have the advantage of being owned by consultancies, giving them access to employers who have traditionally engaged the parent for advisory and governance services.

They will compete against the stand alone master trusts which don’t offer vertically integrated investment propositions but are supported by strong parents. Smart (now largely owned by asset managers), NOW (Cardano), Nest (tax-payer) and People’s (the not for profits insurer B&CE) and BluSky (owned by Unite and JIB) are the key players in this section of the mastertrust market.

Finally there are the insurers, Aviva, Scottish Widows, L&G , Phoenix Standard Life and Aegon, all of whom have their own master trusts designed to compete against the consultancy and stand alone models.

This is a very strong part of the market and – since the authorisation process has been completed, it represents tPR’s new best hope of ridding itself of one of its most intractable problems (the single employer DC plan).

Will workplace GPPs be winners?

I think it unlikely that GPPs will pick up much of the fall-out from the dismantling of these 8000 DC plans.

There is little appetite among employers to pay benefit consultants to set up individual plans instead of trust based schemes, especially where a zero cost, zero risk alternative is readily available through the master trust market.

There are a few specialist providers such as Hargreaves Lansdown and Royal London who have value propositions that may appeal, but these require either high levels of conviction in self selection (Hargreaves Lansdown) or a wish to engage workplace advice (Royal London). Most insurers seem content to ride both horses with the master trust being the first string.

I don’t see GPPs winning out of this, this is a big win for master trusts.

A bad day for trustees?

I am sorry to see the concept of trusteeship undermined but I do not see professional trustees (whether corporate or individual) as solving the appalling standards of administration, communication and investment to be found in many of the schemes the Pension Regulator’s targeting.

Too often it’s been assumed that the skills of DB and DC trustees are interchangeable but they’re not. I’ve met a lot of professional trustees who purport to be targeting DC appointments who have neither experience or competence. DC trustee boards are usually ineffectual and simply divert employer resources away from the proper sponsorship of the DC plan (diluting the contribution rate).

There aren’t going to be many DC trustees going forward leaving many trustees looking to create a portfolio career having to find opportunities as fund NEDs , IGC members or sticking with what most know best – DB.

The FT also report that TPR have given up on

“their plans to force schemes to report the steps they had taken to improve the diversity of trustee boards after concerns were raised in its consultation that the measure could put off experienced and qualified individuals for applying for trustee roles”.


Actually today’s announcement will consolidate trusteeship as  well as consolidating DC plans. The Pensions Regulator appears to be accepting that trusteeship is a sinecure for the lifetime pension professional. The door is being gently closed on efforts to bring though new blood, occupational pension trusteeship will increasingly become a club that requires a long CV.

Where the big-stick approach is probably right.

I sympathise with the protests of Ros Altmann as made in the FT

“It is very disappointing that the regulator does not feel it is vital for pension schemes to have at least one professional trustee on its board. There are so many schemes whose standards of governance are lower than should be acceptable and just having a non-binding industry best practice standard will not ensure those who most need to improve will actually adopt the best practice,”

I don’t think tPR disagrees, the challenge for tPR is to be suffeciently brutal on failing DC schemes that they make it their business to fold as quickly as possible. The challenge for them in their closing days will be to select the right master trust for their members and ensure a smooth and effecient winding up of the trust.

It is not professional trustees that have had their day, it is the majority of DC trustee boards. The shame is that in losing these boards, we lose many good member nominated and corporate appointed trustees. These will be missed, sadly they are too few and too dispersed to amount to a reason to persist with the majority of the schemes they govern.


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Comes from scale

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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