Master Trusts in Ireland: an independent perspective

02 March, 2021

The Pensions Authority has published findings from its engagement with Master Trusts during 2020. It describes them as “disappointing” and refers to “issues with every Master Trust, some which were significant”.  However, there is evidence of commitment from pension providers to address the issues raised. We expect  that the next iteration of regulatory review will show Master Trusts in a more positive light.

What was surprising about the Pensions Authority findings was that Master Trusts are clearly part of how they see the pension market in Ireland developing. The Pensions Authority has cited the need for consolidation in the Irish pension market on multiple occasions. Master Trusts are an obvious route for this. So how do we reconcile this with their results?

Today, leaving aside “one member” pension schemes, Ireland has almost 9,000 defined contribution pension arrangements. With the introduction of IORP II, the industry expects that consolidation will reduce the number of pension schemes to 150 or less. 

Over 8,000 pension schemes will no longer operate in their current form. What will happen from here?

The transposition of IORP II will require pension schemes to have a robust system of risk management and effective internal audit functions. Key Function Holders will need to be appointed in each of these areas. Trustees should also have:

  • appropriate investment and funding arrangements
  • a remuneration framework aligned with the objectives and risk strategies of the scheme and 
  • effective communication and reporting processes for members and beneficiaries. 

There are also specific additional requirements. The Trustee board should be of sufficient size and expertise to oversee the operations of the scheme. It should meet as frequently as required, no less than four times annually.

Aside from the very significant additional obligations set out, there is a key risk that should be considered. Ireland’s Pensions Roadmap notes that all pension schemes need to have ‘authorised status’ from the Pensions Authority in order to carry out activities and to obtain tax relief. Schemes will have to demonstrate compliance with the broader requirements of IORP II. Based on the regulatory approach being adopted and communications from the Pensions Authority, this is not a process to be entered into lightly. 

This all supports the conclusion that over 8,000 pension schemes will determine that the status quo is too risky and too costly, and they will no longer operate in their current form. So what alternatives are there? 

Organisations will either provide pension benefits via a Master Trust or a PRSA structure. The PRSA legislation is in need of significant change. In the short term, it does not offer a viable option for most employers, leaving only Master Trusts.  

So is this a cul-de-sac? Master Trusts are one viable option for those employers who do not want the cost and risk of operating a pension scheme in an IORP II environment. Is that an option that the Pensions Authority will not accept? 

It is informative to look at the Pensions Authority feedback, but let’s explain the dynamics of a Master Trust first. A Master Trust is typically set up by a provider, often an insurance company or employee benefit consultancy. There is one legal trust and one trustee board, but a number of non-associated employers can participate in the scheme. The trustee takes on governance responsibility on matters such as investment funds and service providers. They will ensure compliance with regulatory duties. The decisions over benefit and contribution levels remain with each participating employer. The key for employers is that the risks of meeting the requirement of the pension regulatory regime now pass to the Master Trust provider.

So where did the Pensions Authority find fault? Many of the key issues for the Pensions Authority were instances of conflicts of interest. Examples included where the Master Trust rules did not allow the trustees to replace the administrator, and where the investment of members’ money is placed wholly under the control of the Master Trust operator. There were other concerns raised around a lack of evidence that matters, such as conflict inherent in trustees’ employment and remuneration, had been discussed.

Our engagement with Master Trust providers would clearly indicate that progress is being made and thought has been given to issues around conflicts and independence. We believe that a further review by the Pensions Authority would paint a more positive picture. The decision for businesses will be whether to navigate the requirements of IORP II via a stand-alone pension scheme, or to opt for a Master Trust solution. Based on the developments that we see across the marketplace, the Master Trust solution offers a viable alternative option.

The experience of the UK illustrates how Master Trusts might develop. While Master Trusts have operated in the UK for a number of years, the first UK Master Trust was authorised on 1 March 2019. An authorisation regime was introduced to ensure high quality Master Trust arrangements. Today, indications are that one in four FTSE350 companies now use a Master Trust as their default vehicle. Late in 2020, Vodafone UK moved £1.4 billion of assets and 45,000 members into an authorised Master Trust. 

Ireland needs to consolidate thousands of pension schemes over the coming years. We believe that Master Trusts offer a key platform to deliver on that objective.

The key actions to consider now

Irish businesses have a challenge looming in 2021 from a pension regulatory perspective. Careful steps need to be taken to consider the best path forward. 

Complete an impact assessment

Many employers will need to reassess their pension scheme structures in light of the additional costs and risks faced under IORP II.  

It is important for employers to consider whether they should simply accept the status quo and the additional requirements to comply with IORP II or look to restructure their pension arrangements in a more efficient, effective manner that fits with their objectives and pension philosophy.

Review future pension strategy

An impact assessment of the new regulations will help employers assess if their existing pension operating structure remains fit for purpose or whether there are changes that should be considered.

Consider Master Trust feasibility

One possible option for existing defined contribution pension schemes is to transition into a Master Trust solution, a multi-employer pension vehicle.  This transition shifts the requirements to comply with IORP II to the Trustees overseeing the Master Trust.  It can also often achieve better pricing terms for the employer and/or members.  

Employers are looking to consider Master Trusts as a possible solution for its defined contribution pension arrangement and we have been carrying out extensive due diligence on all the Master Trust providers over the past 18 months.   

We are here to help you

We can help you to navigate the changing pension landscape and support you to find a pension arrangement that best fits your business needs. We can assist you on pension strategy, provider selection, benchmarking of your existing arrangements and transitioning to a new arrangement where appropriate. Contact us today.

Contact us

Munro O'Dwyer

Partner, PwC Ireland (Republic of)

Tel: +353 86 053 6993

Anna Kinsella

Director, PwC Ireland (Republic of)

Tel: +353 87 967 0910

Ross Mitchell

Director, PwC Ireland (Republic of)

Tel: +353 87 235 4460

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