Andrew Cheseldine, a partner at LCP, has also seen increased interest in master trusts from employers as AE beds in. “If you have a trust-based arrangement, trust to master trust feels more like for like,” he says.
Though there is a degree more flexibility than in group personal pensions (GPPs) where all members have an individual contract with the provider, the degree of flexibility is somewhat illusory, Cheseldine suggests. The employer might be able to influence investment structures for instance, but it’s the trustees in the driving seat, as in any trust arrangement.
“The money going into a master trust remains there, unless the member wants to move,” says Cheseldine, because most of them do not allow – or perhaps wish to countenance – bulk transfers out.
“The economics are quite good for setting up a master trust,” he adds, “as money stays with the master trust.”
Truly independent governance?
TPR’s analysis of the master trust market resulted in the release of the joint TPR/ ICAEW assurance framework for master trusts. Criticised for ‘outsourcing’ regulation when strong regulation would be better, it remains to be seen whether this satisfies TPR as far as audit is concerned. But it also expressed concerns about the independence of the governance process in commercial master trusts as to whether the trustee structure is sufficiently independent to challenge the provider in the interest of the members.
“The use of professional trustees in these circumstances goes at least some way to alleviating these concerns,” says Train, “although many still use their own internal funds within the default strategies.”
Dave Lowe, pensions management director at Zurich, believes they have got the balance right. “Pitman has become part of the trustee board in some parts of the market but operates independently for us,” he says. “We can’t remove them without the majority of employers agreeing to do that, which means their independence restrains our powers.”
Whatever the shortcomings of TPR’s framework, any difference between governance requirements for master trusts and other arrangements are likely to be short-lived as the regulator, Financial Conduct Authority and the Office of Fair Trading seek to fix what they consider a sickly part of the market. Whether employers choose contract or trust, they will increasingly be expected to demonstrate the choices they made were the right ones at the time and remain justifiable at all points hence.
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