• Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
  • Events
  • Whitepapers
  • ESG spotlight
  • PPTV
  • Newsletters
  • Sign in
  • Events
    • Upcoming events
      event logo
      Risk Reduction Forum 2019

      The Risk Reduction Forum seeks to arm trustees and scheme professionals with practical insights around best practice, and takeaways they can apply to their own scheme

      • Date: 14 Mar 2019
      • Radisson Blu Bloomsbury, London
      event logo
      Rising Star Awards 2019

      Professional Pensions has launched its inaugural Rising Stars Awards to celebrate the emerging talent in pensions

      • Date: 27 Mar 2019
      • Proud Embankment, London
      event logo
      Defined Contribution Conference 2019

      This exclusive one day conference will provide a comprehensive overview of the evolving DC landscape, and examine how Trustees and Pension Scheme Managers can overcome the challenges they face

      • Date: 24 Apr 2019
      • The Bloomsbury Hotel, 16-22 Great Russell St, London WC1B 3NN, London
      event logo
      UK Pensions Awards 2019

      Make a date in your diary. These awards are the single largest gathering and a veritable 'who's who' of the corporate pensions industry in the UK.

      • Date: 23 May 2019
      • Hilton Park Lane 22 Park Lane, Mayfair, London W1K 1BE, London
      View all events
      Follow our Professional Pension Events

      Sign up to receive email alerts about our events

      Sign up
  • Whitepapers
    • How DC schemes can gain exposure to different asset classes in a low-return environment

      So far, DC plans have largely been focused on the onset of auto-enrolment and changes to the regulatory framework - be it the ‘charge cap,' ‘pension freedoms' or consultations around ‘value for money', says Annabel Tonry, Executive Director at J.P. Morgan Asset Management (JPMAM).

      Download
      Pension freedoms three years on

      In 2015 George Osborne, then the UK Chancellor of the Exchequer, decided that those age over 55 could take much more of their pension in cash. This has since opened up a range of possibilities for DC scheme members in the world of pensions.

      Download
      Find whitepapers
      Search by title or subject area
      View all whitepapers
  • ESG spotlight
  • Sign in
    •  

      You are currently accessing ProfessionalPensions via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0) 1858 438800

      Email: [email protected]

      • Sign in
     
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
  • Follow us
    • RSS
    • Twitter
    • LinkedIn
    • Newsletters
    • YouTube
  • Register
  • Subscribe
Professional Pensions
Professional Pensions
  • Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
  •  

    You are currently accessing ProfessionalPensions via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0) 1858 438800

    Email: [email protected]

    • Sign in
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
Professional Pensions
  • Defined Contribution

Beware the master trust my son: Six causes for concern

tapper-henry-first-actuarial
  • Henry Tapper
  • 05 February 2015
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  
0 Comments

Henry Tapper outlines six worrying misconceptions about master trusts.

Ok. It may not have jaws that bite or claws that clutch or be quite as frightful as the Jubjub bird, but the master trust may be no friendlier than Lewis Carroll's Jabberwock.

This is not a trendy thing to say, since if you're a pension consultant, the chances are you are pinning your hopes on your master trust with bells and whistles and impeccable governance. You may work for one of the big three - National Employment Savings Trust (NEST), Now or The People's Pension - or you may be offering master trust solutions to the IFA community to be rebadged and vertically integrated.

Related articles

  • Our politicians should help us simplify the system
  • Good communications are more important than ever
  • Why should a rising star join pensions?
  • 10,003,000 reasons why AE has been a success
  • Guy Opperman: We have much more work to do on AE

Well over half the 5 million newly enrolled employees are in master trusts, the National Association of Pension Funds desires assets to be aggregated into them and NEST Insight found that most employers got no further than comparing NEST "and one or two master trusts".

But this cult of the master trust should ring alarm bells - for auto-enrolment, for participating employers and most of all for the members of schemes.
So what makes master trusts ‘no-brainers'?

I've identified six claims that are made about them - all give me cause for concern:

1. Master trusts are cheap to join; currently large master trusts are subsidising installation costs from reserves, giving employees a free ride. This gives them a competitive edge but like credit cards, master trusts are for life not just for their initial rates;

2. They are trusts; a trustee board sounds friendlier than an IGC and a few choice names from pension's legion of honour are enough to tick the governance box for many. But when it comes to the acid test of governance, only two master trusts (Now and Peoples) have so far signed up to the Master Trust Assurance Framework (MAF), despite it deriving from the Institute of Chartered Accountants in England and Wales and The Pensions Regulator;

3. They stay clear of retail regulations; for now, master trusts are none of the Financial Conduct Authority's business, but with ‘freedom and choice' and the arrival of 1.3m small and micro employers, the traditional boundaries between institutional and retail are blurring;

4. They are easy to run; unlike insurance arrangements, master trusts are not subject to Solvency II and don't even have to undergo the capital adequacy tests needed to run an advisory firm. In theory this makes them nimble and cheap to run, in practice it means they run with little margin for error. Without adopting the controls laid out by MAF, are they as safe as contract-based arrangements?

5. They can invest anywhere; they are not subject to ‘permitted links' regulations (that restrict where insurers may invest). In theory maste rtrusts have greater flexibility, in practice this makes them the ideal vehicle for pension scams;

6. They can de-risk unwanted DC liabilities; they are taken to be a ‘safe haven' for employers. But they may not be. Contrary to what many suppose, you cannot offload your company's pensioners and deferreds into somebody else's master trust and wash your hands of the liability. You remain a participating employer of that master trust for so long as your former members are in it.

Whether master trusts are being used for auto-enrolment or to de-risk existing schemes or even as the template for collective DC, they are not a super-solution and should be subject to the same scrutiny as any other structure.

As one occupational scheme manager put it to me "why should I use a structure where I am liable for the risk but have no control of the management". She was considering how she could sign-post her ‘over 55s' and could see little comfort in the consultancy engineered master trust that was being offered her.

The adage "if it looks too good to be true..." applies. While there are good master trusts that rival the best contract-based plans in terms of price, governance, investments, employee guidance, auto-enrolment support and investment, there are many that don't and some that are no better than the "frumious Bandersnatch"!

Henry Tapper is a director at First Actuarial

Further reading

Transparency and audit: how to slay the pensions Jabberwock
  • Defined Contribution
  • 13 Feb 2015
Are we entering the era of the master trust?
  • Defined Contribution
  • 29 Jan 2015
Pension master trusts: The definitive list of providers
  • Defined Contribution
  • 08 Feb 2019
Master trusts call for overhaul of TPR general levy
  • Defined Contribution
  • 16 Sep 2014
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  
  • Topics
  • Defined Contribution
  • Henry Tapper
  • master trust
  • contract-based
  • DC
  • Auto-enrolment
  • NEST
  • NOW Pensions
  • The People's Pension

Latest stories

Croydon Town Hall
Croydon sets up asset-backed funding to reduce pension contributions

An innovative funding structure has been agreed for Croydon Pension Fund. However, there are some concerns about the arrangement. Stephanie Baxter reports

  • Defined Benefit
  • 19 February 2019
Half of pension scam red flags raised by schemes involves advisers, finds survey

Some 52% of red flags raised by schemes on suspected scam pension transfers involve advisers or unregulated introducers, a report by the Pension Scams Industry Group (PSIG) has claimed.

  • Law and Regulation
  • 19 February 2019
judge hammer
Norfolk Pension Fund wins rare US securities fraud class action case

The Norfolk Pension Fund has been successful as the lead plaintiff in a class action case that went to jury trial in California involving securities fraud.

  • Law and Regulation
  • 19 February 2019
question
Have your say: Should CEOs have to pay into the same staff DB scheme as their workers?

In this week's Pensions Buzz, we want to know whether bosses should have to pay into the same staff DB scheme as their workers rather than their own executive pension fund.

  • Industry
  • 19 February 2019
Back to Top

Most read

judge hammer
Norfolk Pension Fund wins rare US securities fraud class action case
Croydon Town Hall
Croydon sets up asset-backed funding to reduce pension contributions
calculator
GMP equalisation could land DB members with six figure tax bill
Half of pension scam red flags raised by schemes involves advisers, finds survey
Rising Star Awards
Rising Star Awards 2019 - Shortlists published
  • Contact Us
  • Marketing solutions
  • About Incisive Media
  • Terms and conditions
  • Privacy and Cookie policy
  • RSS
  • Twitter
  • LinkedIn
  • Newsletters
  • YouTube

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017