For some time now, the governance spotlight has been focusing on defined contribution (DC) pension benefits. Some employers find it expensive and time-consuming to meet the regulatory expectations placed on their occupational DC scheme or DC section of a hybrid scheme. As a consequence, there has been a sharp increase in employers looking at moving DC pension provision into a master trust, both for future contributions and employees’ built up benefits.
For employers, the goal is generally to find an appropriate vehicle for pension provision for existing employees, as well as to reduce the costs and management time of their occupational DC scheme. Transferring DC assets into a master trust can be a long process, and is one that should be planned in detail.
Some issues to consider at the outset include exploring what kind of master trust is best suited to the employer’s needs. Different trusts provide very different offerings, from basic auto-enrolment compliance, with limited ability to tailor the offerings, to more sophisticated options where the employer can have a much higher level of involvement in what is on offer to employees.
Employers should also ask whether the master trust has got the seal of authorisation from The Pensions Regulator (TPR), and whether it has demonstrably good governance. Will all the expenses will fall on members, or will the employer subsidise certain costs? How easy will it be to leave the master trust and transfer employees’ funds on to a new vehicle if the employer wishes to do so in future?
Other considerations include pinpointing the right time to involve the trustees of the existing scheme. It can be helpful to involve some trustees in a joint working group to assess the options available and understand any red lines, particularly as it is often the trustees who have the power to transfer built-up benefits.
Employers should also decide who will be tasked with oversight of whether the master trust is meeting expectations for employees.
Last, organisations will need to think about the applicable employee consultation requirements, for example, when closing future contributions to the existing DC scheme.
Ferdy Lovett is partner at Sackers