Master trusts: a fast evolution

31 August, 2022

There has been a lot of activity in the master trust market in the first half of 2022, and this is expected to continue. Most recently, the Pensions Authority has acknowledged the strong progress made by master trusts in their regulatory compliance and noted its intent to apply an intensive supervisory regime. It will be important for employers to consider the nuanced differences that exist as they consider the appropriateness of a master trust, the choice of master trust, and the future oversight of it.

An illustrative graphic of a money on a weighing scales.

A regulatory perspective

It is worth beginning by contrasting the Pension Authority's publication on master trusts in November 2020 to that most recently published in August 2022. In November 2020, it flagged "disappointing" findings, "some of which were significant". This compares to "good progress" and having "complied with the core requirements of the legislation and Code" in August 2022.

Given that IORP II was only transposed in April 2021 and the Code of Practice finalised in November 2021, the efforts made by master trusts and their founders to be compliant by 1 July are commendable. The commitment and investment also recognises the "systemic importance", as called out by the Pensions Authority, of the master trust market for occupational pension schemes in Ireland.

The most recent Pensions Authority publication gives employers, who are considering the future direction for their existing defined contribution pension plans, a level of reassurance that master trusts are a strong viable alternative. It goes further to signal "an intensive supervisory focus to master trusts… to ensure these vehicles are appropriate to offer new and alternative pension provision for members".

The initial risk areas the Pensions Authority focused on signals what lies ahead for those schemes that remain standalone. Trustees and employers should also be prepared for a level of challenge that may not have been experienced before.

Master trust differences

The Pensions Authority's release illustrates some differences in the structural and operational aspects of master trusts from a trustee perspective. These are important as these operating models will enable the economies of scale of the master trust, which will ultimately benefit the member. The adequacy and effectiveness of the operating models will be one to watch as each master trust continues to scale.

It is also worth reflecting on some of the other important differences we see in the various master trusts currently operating in the market. We will explore these topics in more detail in future insights.

  1. Investment: this is an area that can be incredibly complex to compare across each of the master trusts. For example, there are differences in philosophy, fund ranges, default strategies and their de-risking paths, investment managers and how they get reviewed and replaced, ESG principles, asset transition and so on.
  2. Technology: strong investment continues in back office administration and customer-facing digital solutions. For those that are customer-facing, this brings benefits to members and employers where used and the user experience is positive. We see differences across master trusts in the suite of technology available to members and employers, the functionality that the technology contains, and the real-time user experience.
  3. Member engagement: there is an obvious trend of master trusts using multiple channels (e.g. face-to-face, digital, print etc.) to target different membership demographics. Multi-channel communication is becoming a necessity, but the challenge is to understand the effectiveness of the different types of engagement and how providers can continuously improve. The level, frequency and content of member engagement is where we see some of the main differences in master trusts.
  4. Pricing: we see significant value where employers request terms from more than their existing provider. This can offer a means of benchmarking at a minimum and employers are often surprised by the competitiveness in the market. It is even more apparent where the existing scheme was put in place some time ago and terms have not been reviewed. Comparing master trusts can be challenging as there is no single consistent pricing approach adopted. We see examples of cost-sharing options between the member and the employer, all costs being met by the member (one charge for all investment options or differing by investment option), fixed and variable costs, and additional costs for 'non-core' services. For employers, it is important to be fully aware of what is included in the terms prior to engaging with a master trust.

Value in understanding differences

The points above highlight just a few of the differences we see across master trusts and the market is continuing to evolve at pace.

Employers who have taken the time to consider the market, understand the differences and reimagine how their pension plan can fit into their employee benefits strategy have achieved a very positive outcome, both for them and their workforce.

The four key actions to take now

The master trust market continues to evolve with the Pensions Authority cementing its objective for pension scheme consolidation and intense scrutiny for those schemes that remain standalone. With the IORP II compliance deadline pending, capacity is stretched across the industry. For employers looking to transition to a master trust, consider the following:

  1. Timing: commencing in a master trust prior to 1 January 2023 may not be feasible if no appointment has yet been made. We would hope that the Pensions Authority and existing trustees will show pragmatism where a decision has been made to move to a master trust but employers need some time to make a formal appointment.
  2. The differences: as outlined above, each master trust has nuanced differences that should be taken into account before making any final appointments. Employers should be aware of these and seek independent advice to ensure a true and fair comparison across the market.
  3. Oversight of the master trust: in a fully outsourced pension arrangement where there may no longer be a link between the trustees and the employer, it is important to oversee the master trust and its performance relative to the others in the market.
  4. The wind up of existing arrangements: employers will need to be aware of the process involved in winding up the existing pension arrangement and the member communications that need to be distributed as part of this.

We are here to help you

The changing regulatory regime is having an impact on how pension plans are managed. Master trusts are now seen as a strong, viable alternative to maintaining the status quo and complying with IORP II. There are differences in each of them, however. We are ready to help you select the most suitable and reimagine your pension offering. Contact us today.

Contact us

Munro O'Dwyer

Partner, PwC Ireland (Republic of)

Tel: +353 86 053 6993

Ross Mitchell

Director, PwC Ireland (Republic of)

Tel: +353 87 235 4460

Anna Kinsella

Director, PwC Ireland (Republic of)

Tel: +353 87 967 0910

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