Master trusts could be the silver bullet for which we have all been searching. It looks as though there will be a competitive marketplace which will attract credible players. The authorities must resist the temptation to over-regulate this market for as long as it remains competitive. They need to make sure market participants are fit for purpose and that the people involved are fit and proper. They should stay away from product design since this could stall innovation and lead to a loss of the moral high ground if things go wrong.
In life, it is often said that our greatest strength is our greatest weakness. Tenacity and generosity are two cases in point. Too much of the former can lead to
stubbornness while too much of the latter can make you skint. Employer engagement is the pensions equivalent of that double-edged sword.
Half the British population are enjoying a reasonable retirement because they had employers who were engaged in defined benefit pension provision. The rest of us are in a mess because our employers were not engaged, and the state pension scheme falls far short of the poverty line.
At the turn of the century, politicians were asked if they could reduce some of the expensive prescription associated with defined benefit provision. Instead, they opted for auto-enrolment knowing that spreading the jam more thinly would result in levelling down. They felt that auto-enrolment would be appreciated by those who had nothing and would not be blamed by those who no longer had access to quality defined benefit provision.
As our pension system evolves, we need continued employer engagement. Employers should actively choose the master trust that meets their requirement, secure in the knowledge that when employees become former employees, the trustees of the master trust will step up their level of care.
Master trusts can provide a perfect mix of retail focus on the needs of the individual with the value for money normally associated with the institutional market. In addition, they can rectify one of the traditional short comings of the old system where employees who change jobs were treated as second class citizens when compared with those who stayed with one employer for life.
As I write, our politicians are searching for a narrative that proves that they can do more than simply manage a crisis. How about this three-pronged strategy:
Firstly, we must have a labour market which is genuinely inclusive. Work creates wealth for society and provides selfesteem for the worker. Recognising the
pace of change, we must ensure lifelong learning, which will facilitate lifelong earning.
Secondly, there should be a basic state pension that provides a guarantee against absolute poverty in old age. Politicians should be allowed to redefine what is meant by absolute and old. Finally, the workplace should be the hub of measures to provide physical, mental and financial wellness. At the heart of the latter will be a master trust which benefits from engagement of employer and employee. We are not seeking to lift and drop the post-war welfare state but seeking to create a state where all our citizens can fare well, knowing that in later life they will be able to mix and match work and retirement, pay and pension, having benefitted from a lifetime of commitment to society based around a workplace organised by an engaged employer.
As asset managers, you have a lot to go for. Once you have helped us secure a risk transfer for earlier defined benefit promises, you can focus your fire power on the needs of defined contribution members. No longer will you have to grapple with the artificial break point of normal pension age. You will be able to play your part in providing a dynamic mix as people pass through the various stages of later life. This will be rewarding for the customer and fulfilling for you in the knowledge that you are doing a good job.
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