Being a professional or lay trustee is a very important role. Current stats from the Office for National Statistics (ONS) indicate that £146 billion of pension funds sit within occupational defined contribution (DC) plans accounting for part, or perhaps all, of the retirement savings for over 23 million individuals.
The drive that The Pension Regulator (the Regulator) presently has, to ensure value for money is being attained and assessed for members, is not news to any of us due to being a standard feature of chair statements since their inception. It is fair to say though that the regulations have until now been quite liberal, and afford a degree of poetic license to Trustees, in terms of how they assess and rank value within their own arrangements.
Those days are gone and some much-needed consistency and robust framework for how to assess and evidence value for money is being introduced from October 2021. With this framework comes a clear insistence from the Regulator that if you are not offering value for money then you must seek alternative solutions in the event that you are unable to improve the value under the current plan.
In our previous blog, we offer a deeper insight into how you must assess value, and the regulatory background affecting the change, but the key principle is to achieve this through benchmarking to a peer group to ensure equity in the investment performance and member borne charges that erode the true value of pension funds through the netting down of gross investment returns. You should also consider what value means for your members – not all scheme memberships are the same, and a well-managed high-quality value assessment will take this into account.
What can you do?
For many trustees and sponsors of Trust DC Plans the costs to evidence that they are providing value, and if not to improve the current situation may be significant and unrealistic – so an alternative pathway will be needed. In practice, the majority of these paths are likely to lead to a Master Trust solution.
A Master Trust retains all the features of an own Trust scheme – professional trustees are in situ and a panel of professional advisers support trustee decisions, but they allow multiple un-associated employers to participate and benefit from an ongoing development into the product and services with no ongoing cost commitments.
Any Master Trust open for business must be authorised by the Regulator which means that it has undergone a thorough and intensive assessment to ensure that is well capitalised, professionally run and committed to its market. As such we consider a Master Trust to be a very sensible option for many trustees who cannot continue to operate a pension plan on behalf of the sponsor.
How do you choose?
There are a number of Master Trusts in operation that are backed by pension providers, fund managers and consultancies and so they are by no means a one-size-fits-all product. It is, therefore, important to understand your key criteria and what the ‘must-haves’ are in a Master Trust solution as they do come in different flavours and with different growth and market strategies. For example, a Master Trust can have a fixed pricing model, which doesn’t reflect your identity and true commercial value, and another will allow you a degree of flexibility to construct your own default investment rather than buy ‘off the shelf’. Understanding what solution you are looking for will give you a very clear and structured approach to the research and selection process in order that you may find a solution matched to your values.
Here at Broadstone we are very well positioned to help you as we have a current and deep knowledge of the strongest solutions in the marketplace today. We are also truly independent as, unlike a number of other employee benefit consultancies, we do not own a Master Trust. We can therefore help you find the right solution without any conflict of interest and with your interest and that of your members at the very core of our thinking.
If you are interested to hear more and to speak to us about how we can help you with your own challenges please contact us.