Smaller schemes are paying charges that are more than 20 basis points higher on master trust pension arrangement – but this could change under new consumer duty regulations.
This was one of the points of discussion in a panel debate at the Corporate Adviser summit. Hymans Robertson partner Rona Train said there was a significant different in pricing with larger employers getting far more competitive pricing deals. She estimate this to be at around 20 basis points in some cases.
Aon’s head of DC investment James Monk said the difference could be higher with some of the smallest schemes paying charges of around 0.75 per cent — the maximum allowed under the charging cap. In contrast he said that smaller schemes were paying fees “in the mid teens”.
The new consumer duty requirements, as proposed by the FCA, require providers to offer similar pricing structures to all customers. The panel said they would wait to see how this impacted the workplace market and whether this resulted in providers offering the same charges to different sized employers, or between open and legacy schemes.
When it comes to delivering value for money for clients, Train says there is a lot of opportunity, particularly in the GPP market. “There were a lot of GPPs set up in the late 1990s and early 2002 that have not been looked at since.” She cited one case where the consultants were able to make savings for a client of half a million pounds by reviewing existing GPP arrangements. She says that this did not even involve switching providers.
Commenting on discussion that GPPs can be less flexible Train pointed out that Hymans Roberston itself has switched its own in-house GPP to a master trust. “This is definitely possible,” she says.
Benefiz director Tim Gillingham says that while he often recommends GPPs to clients, there remains issues with some providers when it comes to the services offered under the schemes. “We know of providers that offer both GPP and master trusts, but the app is only available to master trust clients,” he said.
Gillingham added that he would like to see a lot more innovation in the GPP market. “There’s a lot that could be done to make these proposition more sexy. If you look at what providers like YouLife and Vitality are doing on engagement I think there are some important lessons that could be learned.”
However he cited Royal London’s profit share initiative as a good example as to how some providers were taking a different and more innovative approach.
Looking ahead those on panel agreed that the pace of consolidation was likely to increase and this would be driven further by the new value for money regulations.
Train said: “There are a lot of deals to be done out there. There are a number of single employer trusts that have moved to master trust but there are still a lot more to go. We would expect around 80 per cent of the sub 5,000 member schemes to switch before the end of the decade.”
This may create problems in the transfer market, with providers increasingly less willing to take on smaller schemes. Train says: “It may be the case that some smaller schemes will only have a more limited number of providers to choose from. There are still some very good deals out there at present, particularly for larger schemes.”
The panel agreed that while consolidation can provide value for money for members there are cases when it might not be in there best interest. Train cited an example where modelling suggested that under a master trust arrangement proposed by the trustee members would have 10 per cent smaller pension pots on retirement. “We could not recommend this on the investment case,” she said.
However the panel agreed that it was important to look at a host of factors including investment strategy, member outcome, communications, technology and governance. All agreed that there had been too much of an emphasis on fees and the value for money regulations where helping to change this conversation towards better member outcomes.
