5 reasons to consider moving your pension scheme to a DC master trust

Now is an ideal time to review your pension scheme design and pricing

The past few years have seen a rapid move from single trust-based pension schemes to master trusts. We expect this trend to continue after the regulatory steer on consolidation of small schemes. Here, we explore five reasons why you should consider reviewing your current arrangement.

1. Competitive pricing

The master trust authorisation process during 2018/19 sparked a race for providers to grow their assets and membership, which brought about very competitive pricing. While the rate of price reductions has slowed down, we are still seeing competitive pricing in the market and expect this to continue as more trust-based schemes look to move to a master trust arrangement and consolidation ramps up in the market.

We continue to see high quality providers able to offer exceptionally low member charges, combined with sophisticated off-the-shelf default investment funds, that can offer value to members that would simply not be available within occupational trust arrangements without significant developments.

2. Benefit from improvements in tools and technology

To get DC scheme members saving more effectively, trustees and employers need to develop a communication strategy that is consistent, results driven and most importantly, genuinely engaging. Tools and technology have an increasing role to play in this, eg through video statements and mobile apps to make saving easier. Master trusts have made significant investments in improving technology and communications over the last year, to offer best-in-class member engagement strategies. Of particular interest are tools to improve outcomes in retirement as well as financial wellbeing modelling and guidance tools.

3. Reducing the time and resource need for governance

A review of your current governance arrangements might reveal that your trust-based governance costs are high (and continue to rise), take up too much time or don’t achieve what you want them to.

A switch to a master trust can reduce some of the burden, for example chairs’ statements are delivered through the provider. This frees up time for the employer to focus on strategy and design, and for trustees to focus on other schemes such as a legacy DB scheme (although you can still retain some oversight of the master trust if preferred).

4. Meet changing requirements on default investment funds

Over the past year, we’ve seen dramatic changes to default investment funds. The addition of responsible investment and climate change considerations have been key reasons for review, as well as adapting to freedom and choice. Now is a good time to challenge the performance of your investment default fund in light of these trends and consider whether alternative solutions may deliver better outcomes. Read our latest Master Trust Default Performance Review to compare the investment performance across the biggest providers’ default funds and benchmark against your current arrangements.

In addition, master trusts offer a more joined up ‘to and through’ retirement solution, whereby individuals can seamlessly transition and remain invested from accumulation to dissipation without incurring the cost of transferring between different pension arrangements – often an attractive offering to both new and existing employees.

5. Offer an attractive savings package

Considering pension arrangements against the backdrop of other savings products is becoming an increasing area of focus for many employers. For example, do employees value saving for retirement more than saving for a home or removing debt? This focus often prompts a review of current savings options and master trust providers can also offer broader savings and wellbeing options on the same platform in order to engage the workforce.

Time to review?

While the move to master trust won’t be right for all, now is an ideal time to review your pension scheme design and pricing, in an era where hungry providers are looking to win work at low cost. If you do decide to move, it’s vital that you carefully assess and select the provider that will best serve your and your members’ needs – getting the right support and advice is paramount to success and good member outcomes.