Master trust v GPP. TPR v FCA. DWP v Treasury. Will either side of the workplace pension sector ever achieve supremacy? Or will it be a case of horses for courses, where the two different breeds of workplace pension scheme share the spoils? Much of the current noise in the market is about the onward growth of master trusts, with even those providers that offer both focusing most of their effort on the occupational side of the house.
Yet are master trusts sweeping all before them? For example, the latest figures suggest that both intermediated and direct to consumer pension firms which only offer a GPP option continue to win a significant chunk of assets.
Royal London has seen assets grow by 13.8 per cent to £10.3bn in the year to June 2020. Hargreaves Lansdown meanwhile posted growth of 12.9 per cent to reach £4.2bn.
Cushon meanwhile, formerly Smarterly, is adding GPP and GSipp options to its master trust offering, the rebadged Salvus Master Trust.
Discussing his organisation’s healthy figures, Hargreaves Lansdown senior pension analyst Nathan Long says the choice depends on the employer, though he also points to significant member engagement with their investments.
“This is probably just a reflection of two types of offering – neither is better or worse. They just tend to appeal to different types of employer. Master trusts tend to be designed to appeal to employers who are looking to provide a pension scheme that satisfies auto- enrolment requirements, collecting contributions and investing them in a default fund. GPPs will offer the auto-enrolment compliance but also tend to offer more choice of investment and tend to be designed to drive higher levels of engagement,” he says.
“Our own proposition sees 79 per cent of members engaging with their pension, with 49 per cent voluntarily contributing more and 23 per cent choosing their own investments, often alongside a holding in the default fund. Overall, the HL workplace pension tends to be chosen by firms that are trying to help their employees have access to the tools and information to be financially ready for life after work.”
Buck head of DC and wealth Mark Pemberthy says: “In some cases, GPPs are a better fit for employers than a master trust so it is partly a case of one size not fitting all. Also, Royal London and Hargreaves Lansdown are examples of GPP providers who do not offer a master trust option, so any DC growth they achieve will flow into GPPs rather than Master Trusts.”
Despite at least some fair wind for GPPs, the predictions for master trusts suggest huge growth. A report by Corporate Adviser published last April suggested the master trust sector would grow to £200bn by 2025, and by around £340bn by 2030.
The Pensions Policy Institute’ DC Future Book, published in September 2020 reported that by March 2019, 98 per cent of employees that were auto-enrolled had been enrolled into DC pensions with 84 per cent or 624,971 schemes in master trusts, 5 per cent in other DC trusts representing 37,205 employers and contract-based schemes making up 10.5 per cent of schemes, or 77,378 employers. There were very small numbers of DB and hybrid schemes not reaching 1 per cent.
Attitudes towards the two forms of pension remain divided. One consultant, speaking on an off the record basis, said: “From an employer perspective, master trust makes more sense as that’s where providers are investing in product development. GPPs are generally stale and inflexible and carry the challenge to employers that even positive changes normally need individual employee consent.”
That certainly is not the view from IFAs who also advise business owners.
Nexus IFA chief executive Kerry Nelson says: “What employers have liked about GPPs is the simplicity. Auto-enrolment is not their favourite subject. They want the simplest option. They see employment as transitional. They perceive the GPP as relatively easy and straightforward, where a lot of employment is not long term.” PTL client director Richard Butcher has long experience sitting on master trust boards.
He says: “There are number of things influencing the choice. Master trusts are relatively new but well established among the larger employee bene fit consultants but not among the more retail end of the advisory market, by which I mean those who spend most of their time advising individuals but have some corporate clients.
“I think this goes back to 1987 when GPPs first appeared. What that part of the market will recommend i s something employers will be familiar with.
“In principle, there is not a lot to distinguish between a master trust and a GPP – both are DC. With both, you pay money in, it accumulates tax free, you get retirement benefits out. There are relatively few technical differences, but the differences are in the governance and that is fairly niche and nuanced.
“Some employers, if asked, may shrug and say: “I need to provide a pension scheme and you tell me Mr Adviser which one is the best one at the moment’.
“The regulatory expectations and a lot of research says that a lot of money is going to flow to master trusts, but they are only making a guestimate of what will happen and they may be overly influenced by their corporate background. The jury is going to be out on this some of this.
“Ten years ago, the smart money was money flowing to GPPs, but overall that hasn’t been the case this year.”
Auto-enrolment was the first shot in the arm of master trusts, the home of members for those employers looking to achieve compliance with the minimum effort. Now structural changes to the occupational world are delivering a second dose. As The Pensions Regulator continues to raise the regulatory bar for single trust schemes and for the remaining DB schemes, so bulk transfers to master trusts accelerate.
Michael Ambery, partner and head of DC provider relations at Hymans Robertson says he is seeing a big wave of business into master trusts from both single employer trusts and GPPs, with dramatic shifts in assets of £5bn in the last six months overseen by Hymans Robertson alone. “We see circa £30bn of assets coming to market towards master trusts in 2021. Some 95 per cent of asset movement in the last year has been to master trust from other DC vehicles.”
He says one significant driver has been partnership firms such as lawyers and big accountancy firms, where historically they have used GPPs because the partners are technically self-employed. Now master trusts are increasingly adapting to allow partners to become participatory employers in the master trust which makes them much more appealing. There is also a significant reduction in c ost s for me mbe r s and improvement in outcomes offered through review of pension vehicle and this is geared toward a change to master trust.
He points to those in top management who are engaged with their investments, who want more fund choice and they may still seek out GPPs or group Sipps for example, employers that are financial services firms themselves. This may also be accompanied by the provision of high quality advice for individual members as part of a corporate offering of the pension vehicle.
This may make up 5 or perhaps 10 per cent of the market at most in future. But for most employers he suggests that the value for money concerns of the DWP and regulators should make the master trust the likely favourite when they come to review their schemes.
He says: “There is strong feeling from corporate clients that there has been more investment into the master trusts propositions. If corporates are reviewing their schemes, I would say take advantage of the current attention and enthusiasm being shown for master trusts and the competitive pricing. The pricing review and competitive marketplace ensures value for employees at such a crucial time.”
Finance Technology Research Centre director Ian McKenna warns that both GPPs and master trusts are in danger of getting out of date if they don’t adapt their approach to modern consumers. “Consumers need a vehicle to provide an income in later life but I don’t think for a modern consumer one size fits all. If you look at what Cushon is doing, it is an example of an organisation which is putting a lot of other savings vehicles and support around a master trust wrapper. Others such as Mercer and Aon are all putting powerful services around their workplace proposition to give customers what they want. I don’t think it is a master trust versus GPP decision, more a case of which providers are taking a modern approach.”