Group personal pension plans (GPPs) and master trusts have both had their periods in the spotlight in recent years. Structurally, there are deep differences between the two approaches, but as part of the wider defined contribution (DC) space, each method serves to meet the needs of savers and employers alike.
But with advisers, intermediaries and consultants often steering employers on which route to take, their influence over these decision-makers factors highly into the proliferation of these two distinct corners of the DC universe.
The rising prominence of master trusts has, however, prompted the duality to be reviewed. For advisers, the distinctions between the two types have risen in prominence as they seek to align the needs and wishes of savers and schemes with the growing popularity of master trusts.
While the workplace defined contribution pension market is anticipated to grow by about 8.3 per cent annually until 2029, master trusts are expected to grow by 20.8 per cent per annum, according to analysis from Smart Pension. While master trust growth is from a much lower base – contract-based pensions still represent the great majority of DC savings – this is spurring some GPP providers to adapt their offerings to better serve advisers’ needs.
Spot the difference
When advising clients on the differences between the two forms, ongoing governance and oversight tend to be key distinguishing features, says Matt Calveley, director and DC national markets lead at Isio. He says a master trust enables an employer to benefit from the oversight of a professional trustee board with a fiduciary duty to act in the best interests of all members, “without having to take on the compliance responsibility themselves,” marking a diminished administrative burden.
Master trusts also afford the added protection of having to pass and continue to meet The Pensions Regulator’s (TPR) authorisation bar, he notes.
That is not to say that GPPs don’t offer “strong protection and support for their members,” says Calveley. They fall under the watchful gaze of the Financial Conduct Authority, must comply with regulatory capital requirements, and must have an Independent Governance Committee (IGC) in place.
But this still represents a difference between the two forms. “Unlike a master trust trustee board, an IGC cannot enforce change. A trustee board can make strategic changes to the scheme without member consent,” says Calveley, who notes that it is often seen as being “attractive to our clients” as there is confidence the master trust will change to protect the evolving interests of members.
Tim Parker, employee benefit consultant manager at Succession Wealth, adds that differences between scheme acceptance and charge procedures are areas of pressing concern to advisers and intermediaries.
He explains that a master trust typically has a set charging structure for all employers, whereas a GPP is “effectively underwritten by the provider”. As a result, some lower-quality schemes “may be turned down” by traditional pension providers.
“This works the other way too, as higher-quality pension schemes may be able to attract much better terms from [a] GPP provider than a master trust,” he notes.
These factors underpinned the role master trusts played in the acceleration of auto-enrolment – an element critical to the momentum garnered by the space in recent years. As of May 2022, there were 36 master trusts authorised by TPR, Pensions and Lifetime Savings Association (PLSA) data shows, with membership climbing by 10 per cent in the year prior.
Membership now totals 20 million members accounting for £79 billion in assets, £71.3 billion of which is in DC schemes, according to the PLSA.
Identifying a solution
With scale comes a compromise on flexibility, notes Parker, who says that most GPP schemes have a much wider choice of investments than a master trust.
“Although choice is appealing, both will also have a default investment fund that is used by the majority of employees,” Parker says. “However, the GPP wins as you can tailor the default fund to the client’s employee demographic and create a best-pick range of alternative funds.”
But for every benefit of both the GPP and master trust, there are also constraints.
On the whole, most GPP providers provide better management information (MI) reports than master trusts, notes Parker, with the People’s Pension an exception to the rule.
“Many master trusts provide no MI reporting at all or will only do this for very large employers. This makes discussing the master trusts performance very difficult,” explains Parker. “GPP provides access to greater client analytics, which better supports an adviser-led governance process. Master Trusts are also being left behind on member nudge campaigns.”
And it is in these areas where GPPs have demonstrated capabilities to surpass the level of service offered by the well-resourced master trusts. GPP providers have recognised that service is “a key differentiator” and are allocating more resources to provide more comprehensive end-to-end coverage, Parker says.
GPP providers have “much clearer member communications” and use a wider range of media including videos, member support teams and apps,” Parker adds, although there are “good and bad in both camps.”
But for advisers, the quality of support services available is an essential link to processing
issues efficiently – a key factor in the working relationship between all parties. “As advisers, we like dedicated support contacts as you can build up meaningful relationships and get queries sorted quickly,” Parker adds.
Accessing support
Beyond the capabilities of each form of pension product, advisers say the support services available can be an essential factor in ensuring that clients have as much access to the various benefits of each type.
Calveley says one approach is to form a “tripartite relationship between us [the adviser], our client and the provider, where we work together in the best interest of the members.”
In practical scenarios, this works best where the provider has a strong relationship with and understanding of the client with Calveley and the wider team “providing independent oversight and challenge from a wider market perspective.”
Likewise, Gibb says it is crucial for advisers to have the ability to gain access to transparent information, technology and support from providers to carry out a thorough examination of the solutions on offer. Only then can the recommended scheme be implemented, and provide employers and members with ongoing support.
This is an area identified by GPP providers as an opportunity to attract corporate clients keen to have access to more comprehensive market information.
“GPP providers have started to be more competitive with smaller schemes as automatic enrolment is behind us and members have bigger pots of money. More corporate clients value a market review, so are more willing to pay enhanced adviser fees,” says Gibb.
But with the rise of master trusts reshaping the balance of the UK pensions sector since auto-enrolment, and the various offerings that have been launched in that space, Gibb says there is a need and opportunity for professional advisers to “add significant value” when guiding employers to implement or review their company pension scheme.
“This is arguably one of [an] employer’s most significant employee benefits,” says Gibb. “And advisers can help them to understand the merits of different regimes and solutions to ensure they secure a scheme most suited to the needs of the company and their employees, together with providing ongoing assistance in promoting this valuable benefit to their workforce.
“That said, for employers [that] opt to hand over responsibility to a board of trustees, arguably the master trust limits the opportunity for advisers to add significant value in terms of the ongoing management of the scheme,” adds Gibb.
It is certainly not true to say that master trusts have fallen out of fashion. But with GPPs offering accessible support and flexibility, we may see them come into the spotlight once again.