Stick or twist, choosing your workplace pension (2.0).

We are now 100 months into auto-enrolment – it commenced in July 2012. Many schemes that were designated as the employer’s workplace pension between 2021 and 2015 are needing to be reviewed. For some employers, that review will be of choice, but for others, the scheme they designated, is now having to assess itself for its  Value for Members and should its Trustees consider it is failing, it will have to find a consolidator , transfer its investments and records and wind-up.

The decision that Trustees of smaller occupational DC schemes will have to take over the next 12 months is over whether to stick or twist. Stick with the current scheme or twist into a master trust.

There is an interesting article , written by People’s Pension’s Phil Taylor. which has appeared in my linked in feed. I’m re-publishing it on my blog as it adds to the debate in a constructive way.

How many consolidator’s want your business?

It is interesting to see how each master trust presents themselves in this process. Doing so as People’s Pension are doing , suggests that this decision can made by meeting certain “requirements” . What these requirements are, isn’t made clear by the article, but I am making an informed guess that they are the requirements of a master trust before taking on a scheme and may reasonably include an assessment of the quality of data the master trust is taking on.

However, the word may refer to the requirements of the Pension Regulator on the transferring scheme in terms of governance  Will the Regulator , Pharaoh-like, refuse to let the people go?

Before considering the available investable universe, employers and their trustees need to consider which of the master trusts are realistically open to them. Let’s hope we have clarity on this so that employers who want to research options independently -can do so.

If Phil or one of his colleagues’ can clear this matter up, I will publish that explanation on this blog.

Here is the article in full

The Pensions Regulator’s drive to ensure trust-based schemes provide value for money emphasises member assessments and whether small single-employer trusts with less than £100m can achieve positive member outcomes on costs, charges, investment returns and administration. Part of the reasoning is larger schemes have lower running costs per member and better buying power.

Where to start?

It’s a daunting task ensuring the correct governance is in place to meet the new requirements and complete the assessment. The Pensions Regulator’s website explains the new guidance, but this may raise further questions, like:

• What’s the cost?

• Which 3 DC schemes do I compare with?

• And, what happens if after all this work, my scheme fails the requirements? (editor’s bold)

These are challenging questions, and there’s the belief that many Trustees of small schemes will elect to move to a master trust arrangement. So, if you’re faced with this scenario, what’s important to consider?

Cashflows are key

An important factor should be the master trust’s size and scale. We often use AuM to determine this but possibly more important – and often overlooked – is the size of monthly cashflows. High continuous cashflow is key. It helps provide the scheme with stability and longevity and gives the option to use profits for future propositional developments that will benefit its members.

Investment capability also benefits from scale. For instance, what does a provider mean by ESG and, critically, how will their strategies be implemented? This is important for all funds offered, but especially the default arrangement where most savers invest. Scale, in terms of large cashflows with a clear investment roadmap can enable a more sophisticated ESG implementation strategy, possibly through cashflow redirection, rather than a simple sale and buy approach. This can reduce both risk and transaction costs.

Long-term goals

It’s also important to understand what the provider’s endgame is:

  • To sell when the scheme is large enough?
  • To repay its shareholders?
  • A loss-making scheme subsidised by other business lines, and if so, how long will it be allowed to continue?

Answering these questions will help clarify whether you can trust the selected scheme to provide long-term retirement solutions for members. If not, it may mean future change, leading to member confusion and possible poorer outcomes. And ultimately, the final question must be… is that something any of us should willingly accept?

I think it brave and proper for People’s to lay out their stall in this way, not surprisingly , considering these terms of reference, they would score pretty highly in any beauty parade of 3 master trusts. If you were to be cynical, this blog is no more than a disguised advert, but it is more than this. It is genuinely adding to the debate.

Choosing a Workplace Pension 1.0

Back in the day when Pension PlayPen helped small employers determine which scheme to install as the employer’s “designated workplace pension”, each employer choice was broken down into 6 ratings

Charges and costs


Integration to  Payroll and HR functions


At Retirement Options

Employee communications

Each employer could assign different weightings to each rating and so create a balanced scorecard, resulting in a score out of 100. This approach broadly followed Ian Costain’s original work with the Pension Regulator on the 6 factors that made for a good DC outcome.

People’s pitch is about “durability”. It has immensely strong cash flows as they are diversified across a wide range of generally small employers and are driven by  compliance to the auto-enrolment regulations. People’s Pension has no shareholders and (as far as I know) is not a loss making scheme being subsidized by other parts of B&CE. In terms of durability, I expect People’s Pension to survive me and that continuity should prove attractive to some trustees.

Some comparators are relatively simple, headline costs and charges for instance, but beware net pay schemes, which till 2025 will be costing low-earners 25% more in unrecoverable contributions (while providing higher earners with relief on HRT through payroll).

But how do we assess “at retirement options”, especially when the scheme we are supposed to consider a benchmark- Nest – is almost bereft of them?

How do we compare the investment experience accorded members using the new “net performance tables” and what does past performance tells us of the investment principles of the master trust’s trustees?

How do we know that the new scheme will integrate to our HR and Payroll functions and what is the track record of the master trust in managing and recording contributions legitimately.

While we can see the member communications and road test much of the functionality that members can use – most of which is in the public domain, what is the independent experience of employers and staff who have used these services , relative to others? We need a trip advisor or a trust pilot metric that is not malleable to the wiles of the master trust’s marketing department.

Applauding People’s Pension for encouraging trustee’s to think for themselves.

People’s are boldly making their statement of intent and I wish them well, they are telling us how they see informed decision making. Most informed decision makers will see they have conviction and will respect them for it. But purchasers  will be the judge of what matters, not consolidators!

Some will say that this is a matter for advisers. But I am all for independent decision making when it comes to the “stick or twist” decision. Advisers can help, but ultimately this is down to the Trustees , the sponsoring employers and the members.

I fear that as happened in auto-enrolment, much decision making made by employers and trustees about scheme designation 2.0 will be made rather less on conviction than on what is considered “the lowest risk to the sponsor and trustees”. This will undoubtedly lead to herding and possibly a dumbing down as innovative master trusts are ignored in favor of the household names.

This blog , AgeWage and the Pension PlayPen are dedicated to ensuring that , as far as possible, employers, trustees and their advisers take informed choices that are made from conviction , not from  ignorance or insouciance.



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , . Bookmark the permalink.

Leave a Reply