When you look at the mastertrust list you can see that the large employers with an history of pension provision for their staff have now decided to either provide staff with “pensions” or to rely on master trusts to do it for them.

The vast majority of small companies will rely on master trusts and looking at the numbers for Lifesight and other schemes with “underwriting” terms you can see the ghosts of corporate pension teams waving goodbye to their members!

But there is a hardcore of UK employers who want to offer pensions to current and  former employees. What are the opportunities ahead of them? I would reckon their are four for employers with an interest

1. Offer a transfer in facility to a DB and accept the transfer value to pay out a defined benefit pension.
2. Decide on CDC for the company on the basis that the upcoming legislation is workable
3. Flex and Fix (drawdown with a bulk or series of single annuities)
4. Work with other employers in a new multi-employer arrangement using any of the three above.

The DB guarantee in retirement

A transfer in facility to a DB scheme is not so fanciful. All public sector schemes including LGPS offer a swap of a DC pot for a DB scheme and the conversion rates are established by GAD using the Scape rate.  Private occupational schemes can reopen trustees for transfers whether the DC is separate from the DB scheme, part of a hybrid (DB/DC) scheme and theoretically an arrangement could be made with another DB scheme. I am not saying that third party schemes are likely to open their doors but there are multi employer DB schemes might open themselves if surplus was to be put to good use (PPF included).

If we reopen DB then we may need a superfund approach or at the very least a capital buffer offered to minimise the strain on the DB plan (this would mean the DB scheme fell under parts of superfund legislation).

Not guaranteed but mutual – CDC

A CDC scheme swaps the certainty of a DB plan for greater upside over time. If the value of the pension is upside from investment . collective endeavour and pension as something the company does then a CDC plan is something they can run for themselves. But this is a long-term investment and there needs to be something for generations to come (think Royal Mail or the Church of England- who want to run a scheme for staff and for associated employers). The DWP are much more worried about a CDC in wind up than the plan for a company that wants it. CDC is for an employer comfortable with its future.

The difficulty with wind-up is with the employer covenant. It can be managed as a decumulation only arrangement (which is more difficult) or a whole of life basis, which means the employer being on for managing pensions but also the accumulation (contributions and management of intergenerational fairness). But it will always be difficult for an employer to take on a CDC  scheme for itself and itself alone.

Instead, I expect to see multi-employers springing up with the scheme being run on a mutual (joint venture) basis. This has the great advantage for employers with employees likely to move from one to another and employers likely to be bought by one another.

Flex and fix DC.

This is an arrangement which is not collective but individual, savers keep their pot into retirement and can walk away with a capital value with the opt-outs of freedom from a  pension.

This flexibility will undoubtedly be easier for an employer to sell to staff and their representatives but one wonders what the employer is doing running a trust to compete with master trusts who will most likely be offering such an arrangement as their default.

At some point (Nest call 85 though it could be a lot younger) the pot is swapped for an annuity (either individual or part of a bulk arrangement). It is increasingly difficult for a pot to offer a better deal than an annuity as the member/policyholder moves into their seventies. The younger the annuitisation the less the flexibility but the less risk that a flex and fix arrangement cannot meet the income offered under flex. Inevitably a glidepath will be in place and (since the only likely options after 70 are annuity purchase or death, traditional lifestyle seems appropriate.  Holding money in reserve looks likely as people reach the point where savers move from drawdown to annuity,

The abdication of responsibility for employee retirement.

If we take use of their own DB scheme or some variant on a superfund, use of their or a multi-employer CDC or a DIY flex and fix, we will see some employers digging in for the long game as independent of a commercial master trust.

Rather than a mutual in which the employer has a stake, the commercial master trust takes on all responsibility for the employee’s retirement and is only responsible for the initial choice. It might be argued that reviews of that decision will be important but experience of large companies participating in commercial master trusts is that they don’t tend to review let alone change provider.

There has been talk of adopting CDC in decumulation among one or two of the more ambitious master trusts but there will be an enormous herding towards the value for money option pioneered by Nest (flex and fix).

Master trusts have the issues of multiple employers (in Nest’s case over 1m employers), they have small pot problems and they may not have experience of paying people money rather than taking it from them.

My guess is that many large employers who have already opted out of running their own pension scheme will see master trusts paying their staff in later age. But I suspect that when it comes to paying their current staff and staff yet to draw or get given a pension, some employers will revert to that definition of a pension as deferred pay and bring the job in – house and take it away from the master trust or group personal pension.