Now that we are several years into the mass conversion of DC schemes to a master trust, it feels like a sensible time to review whether or not employers are getting what they expected from the change.
Much of the commentary on this phenomenon has already highlighted the obvious advantages awaiting employers, such as removing risk from the company balance sheet, lowering DC pension running costs, and accessing a lower charge product that employees can benefit from. But given how many schemes have moved or are in the process, what else might an employer benefit from were they to transfer to a master trust?
1. The power of change
I vividly recall the first major project I worked on to help an employer move to a master trust. The employer’s workforce was large and diverse in terms of age, geography within the UK, earnings, accumulated wealth, other financial assets, and general financial awareness.
Having a high profile scheme change became a rallying call for a number of advantages. Members were once again engaged with pensions – never a bad thing in my opinion – they assessed self-select investment decisions and learned more about annual and lifetime allowances and carry forward opportunities.
The employer received great feedback from the workforce for invoking this initiative, and at the same time launched a more tailored and fitting benefit structure to meet the requirements of tapered annual allowances, thereby maximising their spend on employee benefits.
The employer also saw data benefits – expression of wish mandates improved, personal data was corrected and personal email addresses captured.
The last of these points allowed for personalised communications across pension and other benefits.
It was a simple example of how far-reaching a pension change project can be.
2. Wider benefits from the provider
Advisers rightly ask employers and ceding trustee boards to take time and consideration when selecting the most appropriate provider. There are, of course, a multitude of factors to be scored against,some of which are easy to define, such as what will the charges be, is the investment range broad enough, does the receiving master trust have built-in retirement solutions? But there are wider benefits being realised through careful selection of the right provider.
Two good examples for employers to be aware of are holistic financial well- being and broader B2B benefits. Concepts such as Mercer Money were not available until recently, but for some employers this fulfils a beautiful role in an overall financial wellbeing offering – an area that has been very important for years and magnified under the current pandemic. With regards to broader benefits, these too are ever-changing. Within our own offering, we can see the way in which Lloyds Banking Group considers a company pension scheme alongside other corporate banking, giving finance directors significant added benefits if the pension scheme sits with Scottish Widows.
3. Bring other benefits to life
Employers have, for years, sought to tailor benefit packages to the needs of their workforce, and specific cohorts within. Transferring to a master trust offering has presented opportunities to take this one step further by marrying the pension scheme to other financial products. This has opened the door for employees to tailored personalised savings styles. Some employees will be able to divert contributions across these modern master trust offerings into general investment accounts and Isas. For employers with specific needs within their workforce, this flexibility has assisted with recruitment, retention and staff satisfaction with the overall benefit offering.
There will of course be ongoing debate as to what the DC market will look like in the UK over the next few years. Will master trusts continue to grow at the current rates, or will we see any counter challenge from contract-based solutions, or the desire to remain in own trust? Whatever the outcome of those debates, one thing is clear, employers are currently getting real benefits from transferring to a master trust, and advisers are increasingly seeing ways to broaden those benefits.
Click here to download your copy of the Corporate Adviser Guide to Transferring to a Master Trust, published in association with Scottish Widows