By Rona Train, Senior Investment Consultant, Hymans Robertson
With the inexorable march from single occupational trust to master trust arrangements continuing, how can the trustees of ceding schemes ensure that the grass is at least as “green” for their members in the new arrangement?
Soon, trustees will no longer require actuarial sign off for the transfer to a master trust arrangement. But they will still be required to comfort themselves that their members will be receiving value from the new master trust.
Historically, much of the focus has been on ensuring that ongoing charges in the master trust are comparable with or lower than the existing arrangement. But one thing that is often ignored is the strategy that the new structure will actually deliver in terms of its investment offering and the impact that this will have on members’ pots at retirement.
Our recent master trust research showed that there is a wide range of investment strategies available in terms of the default offerings from the master trust providers. Some of these strategies have as much as 40% invested in bonds in the growth phase.
As a 25 year old, do I really want or need to have almost half my pension scheme money invested in bonds? No. What I really need at that stage of my career is as much return as possible at a very low cost. Volatility really doesn’t matter at this point in a default strategy as contributions are the key driver of outcomes. So although the master trust arrangement may be able to offer competitive fees - in many cases, comparable to or lower than a single trust – the investment strategy could lead to anything up to a 25% lower outcome at retirement than would have been achieved with a well-designed default investment strategy in the ceding scheme.
Not all master trusts are the same, and as always, we would urge trustees to consider the bigger picture when protecting the interests of their members in any transfer. Focusing too much on fees could actually deliver significantly poorer overall outcomes for members
So trustees should not be afraid to ask for help in assessing whether the green green grass of any new master trust arrangement is actually all it’s cracked up to be in terms of delivering good member outcomes.
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