Introduction

The consolidation of defined contribution (DC) pension schemes into master trusts has been evolving for some time. The recently transposed EU Directive IORP II, introduces new governance, risk management and communication requirements on Irish Pension schemes and these increased requirements have prompted many employers and Trustees to examine the master trust offerings that are currently available in the Irish market.

What is a Master Trust?

A master trust is a single pension trust in which multiple, non-associated employers can participate – each with their own ring-fenced section. The master trust is managed on behalf of its members by a single, professional trustee body which is independent of each employer, and which has the fiduciary and regulatory responsibility for running the scheme. It is responsible for all governance and compliance, investment strategy, manager selection and monitoring, the administration of the scheme and the member communications.

Why Employers are considering switching to Master Trusts

Switching to a master trust may not be suitable for all employers, especially larger schemes who may prefer to retain the identity of their own scheme. However, master trusts can offer inherent benefits to many employers that are seeking a more suitable pension scheme solution as a result of the IORP II regulations. The benefits that employers are seeking include:

  • Potential cost savings;
  • Risk reduction;
  • Removal of the regulatory and administrative burden;
  • Access to high quality & lower cost assets, by virtue of their scale;
  • Adoption of best practices through robust governance frameworks; and
  • Use of multi-channel member engagement and communication using the latest digital technologies.

Key Considerations before moving to a Master Trust

The underlying premise is that a Master Trust will be better, or at least no worse, for company employees. The employer, and probably the Trustees of the existing company pension scheme, will want analysis completed to evidence how you have arrived at that conclusion, and also views on key issues such as:

  • Does the Master Trust represent a good value proposition for employees versus the current company pension arrangement?
  • Do you understand the Master Trusts governance structure?
  • Which Master Trust is most suitable and why? Do you understand the strengths and weaknesses?
  • In selecting a Master Trust, are the employees locked into the post retirement options, such as Approved Retirement Funds (ARFs) offered by that provider?
  • How do you ensure that the Master Trust continues to deliver a good proposition for employees, year after year?
  • How easy is it to change to an alternative Master Trust if you are unhappy with the initial selection?
  • What is the process for transferring schemes in bulk into a Master Trust, and what communications to employees are considered best practice or required?

From the point of view of employees, it is important to recognise that:

  • They tend to trust their employer more than financial service providers.
  • Their investment choice will be limited to that provided by the Master Trust provider.
  • They rely on their employer determining if the Master Trust is in their best interest.

Conclusion

The market for Master Trusts is developing fast, as providers rush to gather assets. The uncertainty created by IORP II is being viewed by many providers as an opportunity to convince employers to opt into their Master Trust. It would be prudent for employers and trustees to take some time to consider what they want to do and give some time to see how the Master Trust market develops. To be sure of making the right choice, independent advice should be sought. Acuvest offers an unrivalled ability to assess the strengths and weaknesses of the various master trust solutions that are available in the Irish market.

For more information, please contact our Head of Pensions, Edward O’Hanlon at edwardoh@acuvest.ie.