Why do commercial master trusts find pensions so hard?

A commercial master trust’s business is to help people saver for a pension. We see them go to extraordinary lengths to promote the need for more money to come their way, either from increased contributions or from combining the savings pot with pots of savings from elsewhere. The aim of all this should be the payment of a pension, an income for life – or even the life of the adults in a household.

Yet, when the time comes for people to want their money back, instead of helping them to organise an income from the master trust, the master trust allow the savings to be transferred into drawdown plans, annuities or simply as cash withdrawals.

Despite the best efforts of the Government to solicit interest in CDC, we have yet to see one master trust state they will run a CDC within a master trust (TPT have come closest).

Nor do master trusts advertise them to their membership let alone the general public as the place to turn pots to pensions. At best , they will do deals with other occupational DC schemes to de-risk the ceding scheme of post-retirement obligations , that might bite the sponsor in years to come. Retirement-Only bulk transfers offer quiet reassurance that a master trust will better deal with the nastiest hardest problem in finance, rather than the trustees of the ceding scheme.

But we have yet to see any commercial master trust embrace the payment of pensions from within the fund, in a way that might properly label them “full service pensions”.

This strikes me as tactically understandably but strategically inept.

Tactically, there is still too much to be gained in gathering funds under management to put too much effort into the spending of those funds. Even if there is an opportunity lost today, it is nothing like the opportunity of consolidating other pension schemes and winning new business on the secondary market.

But strategically, there is an opportunity going a begging. Listening to Emma Douglas complaining on the VFM podcast last week that employers are still choosing pensions solely on price begs the question “how else can they differentiate one scheme from another?” How do you differentiate Aviva, from L&G, from SEI, from Aon et al?

I would like to think that over time, schemes will be known , not just for being safe havens for savers, but for being the one stop pension shop, where savings can turn to pensions.

This does not necessarily mean that a master trust needs to get better at signposting. It is possible for pension schemes to sit inside master trusts which pay guaranteed lifetime income in exchange for people’s pension pots. It is quite simple to set up a trustee investment plan to pay non-guaranteed income where the saver manages the investment and drawdown rates him or herself. It is even possible for an insurance company to set up a bulk annuity arrangement within a master trust , where the member gets preferential rates because of the collective purchasing power of the master trust.

In short, DB pensions, collective drawdown and even annuities can be bought into master trusts and all these decumulation options can be independent of the funder or the originating sponsor of contributions.

This is a bold claim, but I think you will find it stands up under the rules governing hybrid pension arrangements. For that is what we

are talking about.

There is no reason why the funder of a master trust cannot take an economic interest in the creation within the trust of all these income producing sub-schemes , not to mention CDC which may be a further option. Strategically this makes absolute sense.

It is when we get to a tipping point where the demand for pensions becomes insistent, that we will start seeing proper pension solutions within commercial occupational schemes.

Have we reached that tipping point yet?