Government drive towards Master Trusts – what do HR teams need to know?
Does your defined contribution pension scheme offer value for money to its members? Or would their interests be better served by transferring into a Master Trust? This is the question HR and finance directors of small trust-based DC schemes will be required to answer under proposed legislation due to take effect later this year.
The UK government has recently issued legislation for consultation which, if introduced, will mean businesses with DC schemes with assets of less than £100 million will need to assess whether their scheme offers value for money.
Value for money is to be measured by the investment return and charges benchmarked against three larger pension schemes. Businesses and their pension scheme trustees will be required to report back to members on the measures being taken to resolve concerns if a scheme does not offer value for money.
The aim is to encourage consolidation, and for employers and trustees to consider whether the best way to achieve that is to move to a Master Trust – a multi-employer occupational pension scheme.
If you do not currently provide one of these pension schemes for your employees, there are a few things that need to be considered.
Firstly, there is the value for money assessment. The decision of whether to move to Master Trust will follow, which will mean identifying which Master Trust provider is the best option, and then completing all the necessary work to set up future service contributions, transition the assets over and wind up the old scheme. The whole process will take a good six-to-nine months with most businesses needing to appoint a pensions specialist to manage the project.
As part of the project, you will need to think about what you want from a Master Trust for your employees. Is it excellent communications? Some providers offer the latest tech with video benefit statements and apps that also link in to other wealth options. Is it a more suitable default option, with carefully curated self-select investment options and perhaps a greater breadth of ESG options?
You will also want to check that the Master Trust has invested in a decent pension administration system and that the charges won’t be higher than members already pay. All Master Trust providers have different offerings in all these areas. A good broker will be able to help you navigate the Master Trusts out there and work out which is the one for you. It’s worth taking the time to choose carefully as this is going to be a long-term partnership.
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You will also need to work with the trustees of your current scheme as they will need to be happy that the Master Trust is an appropriate place to take past service benefits, and will want to take investment advice that the default fund is suitable.
As the obligation under the regulations lies with the trustees, it makes sense to engage with them early and work on the project together.
There is likely to be a rush to transition to Master Trust from October onwards, and most Master Trusts could have limited bandwidth. It is sensible to start thinking about what’s needed now, as the sooner you act, the easier and less costly the process is likely to be.
Jo Myerson is an independent trustee and trustee director at Ross Trustees.