Master Trusts is gaining momentum, but more focus needed on communication and capacity constraints.

The roll out of a new model for company pensions in Ireland has resulted in a mushrooming in assets for Master Trusts. In a first report of its kind, PwC assesses what this means for companies who want to make the most of their employee benefits programs.

There is significant growth potential for Master Trusts; There has been a significant reduction in the regulatory burden for companies that have made the switch to a Master Trust; There is room for improvement in the interaction between Master Trust providers and both employers and employees; Some Master Trust providers are coming under administrative pressure. 

These are some of the key findings from PwC’s Master trust report, launched today, based on PwC’s experience with employers of all sizes, including some of the largest employers in the country. The analysis provides perspectives on how Master Trusts are operating in Ireland, how the employee experience might be enhanced and the future outlook for Master Trusts. 

In response to the Government’s pensions simplification initiatives, Master Trusts have rapidly emerged as the optimal company pension scheme solution. Total assets under management by Master Trusts now exceed €22 billion. This is therefore a good time to assess the success or otherwise of this big switch.

Munro O’Dwyer, Pensions Partner, PwC Ireland, commented: “The Master Trust market has transformed how defined contribution pensions in Ireland are operated, and that transformation journey is now an irreversible trend. Employers are seeing this as an opportunity to assess options.

“A key benefit is that Master Trusts provide a range of communications, which can be availed of by all pension savers. Effective pension communication needs careful consideration so that the messages are not too technical and easily understood. It is key for employers and scheme providers to consider workforce demographics, preferences and communication habits when designing a pension communication strategy. Selecting a Master Trust that is prepared to support that engagement ambition is key.” 

Key findings from PwC’s Master Trust analysis include:

• With a potential market of some 630,000 individuals and potential assets under management of some €50 billion, Master Trusts have come to dominate the pensions landscape in Ireland and the momentum shows no sign of stopping. Many of the largest defined contribution schemes in the country are exploring Master Trusts as a solution.
• PwC’s analysis reveals that the future of Master Trusts in Ireland will be for fewer but larger Master Trusts - with 5 or 6 funds likely to be appropriate for the Irish market of the future.
• Only pension schemes of the largest scale (arguably assets in the billions of euro) can realistically consider maintaining the required infrastructure to operate under the new legislative regime over the long term.
• There has been a significant reduction in the regulatory burden for companies that have made the switch to a Master Trust. 
• The analysis confirms that by adopting a Master Trust, employers can focus attention on important areas such as employee engagement and improved communication around the respective schemes.
• Building trust with long term pension savers is critical for Master Trusts to be successful. Communication is a key platform that can be used to build this trust. However, PwC’s research identifies that there is room for improvement in the interaction between Master Trust providers and both employers and employees. For example, the report captures that Master Trust practices around engagement with employers vary across the Irish market.
• The analysis reports that there is evidence that some Master Trusts providers are under administrative pressure. Capacity issues are visible through service level agreement reporting. 
• The next phase of development in the pension market will see Master Trusts look to differentiate themselves, and innovation in technology and member engagement will be a key point of difference. This innovation will need investment, hence the drive for sustainably profitable Master Trusts. 
• The Master Trusts that will be successful in the Irish market will those that deliver added value such as enhanced member experience and product innovations. There is international evidence to suggest that combined independent governance, professional in-house investment management, scale and extensive geographic and asset class diversification adds additional value for savers. 

Munro O’Dwyer concluded: “The pension landscape is experiencing significant change at present, with the introduction of auto-enrolment progressing through 2024, planned legislation around the removal of mandatory retirement ages and changing retirement patterns more generally. Added to this, more onerous requirements for trustees and a greater administrative burden attached to providing pension schemes, makes switching to a Master Trust even more compelling. With this trajectory continuing upwards, providers may face some capacity constraints. Employers may need expert advice on selecting the correct model and the Master Trust that can deliver the optimal outcomes for employees.”

ENDS

Notes to editors

About the report:
PwC’s latest analysis of Master Trusts in Ireland has been prepared based on its experience and understanding of the market and regulatory environment.  PwC’s report on Master Trusts in Ireland will be of value to all employers who are considering or who have considered using a Master Trust. 

A Master Trust is a pension scheme where multiple employers can participate. Each individual employer decides what benefits the pension scheme should provide for their employees as they would for their own pension scheme. In the case of a Master Trust, the trusteeship and management of the scheme will be undertaken centrally by a third party.

Because of their scale, Master Trusts can allow investment in better governance structures thereby safeguarding members interests and creating trust in their proposition. They can also provide competitive member costs and a range of investment and communication options.  Greater resources can also allow increased investment in innovation and efficiency.