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Master trusts were designed to implement tougher standards in the pensions market and many employers are considering joining one, not least because of the administrative and cost savings and pension flexibilities for members.
From 6 April 2019, master trusts operating with employers and employees in England and Wales have to be authorised by the Pensions Regulator and HMRC-registered. As the market begins to take shape, we consider what employers need to know.
A master trust is set up as a trust, governed by trustees and a principal employer. Participation is open to any employer, who agrees to be bound by the master trust deed and rules. There is no requirement for the trust to be associated with the principal employer or other participating employers. Each participating employer has its own "section" and benefit schedule.
Authorisation is given if the scheme satisfies key authorisation criteria including: the trustees and others involved in running the scheme are "fit and proper persons"; the scheme is financially sustainable; and it has a continuity strategy for dealing with certain trigger events. Once authorised, the Pensions Regulator has a supervisory role, together with the FCA which regulates the financial promotion of the master trust.
Master trusts offer value for money though economies of scale. Typically the annual management charge for members is lower than for a group personal pension plan.
Most master trusts can be used as qualifying schemes for auto enrolment purposes, with communications and any legislative changes required for employer and employee contributions being managed by the trustees.
Master trusts provide flexible retirement options for members, as part of pensions freedom and choice. This includes drawdown within the master trust at retirement, rather than members having to transfer to another provider or a SIPP, which tend to have higher charges.
There are many investment options for members, with some employers following the standard options offered by the master trust. Alternatively, some employers who bulk transfer funds from another scheme map across their current fund options or have bespoke investment options.
There is strong governance through the trustees and the independent governance committee (IGC), which each master trust must have in place. These typically include professional trustees, with wide experience of pensions. This offers employers the opportunity to step away from their own governance committees, saving hard and soft costs.
Many have sophisticated online platforms that allow members to model future retirement outcomes and make investment decisions, which are not available in many group personal pension plans.
The trustees have a fiduciary duty to act in the best interests of the members, so they will exercise scrutiny on their behalf to ensure this is delivered.
This article was first published by People Management
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.
27 February 2019
by Sasha Butterworth