The rise of master trusts – but not all are made equal

Mas­ter trusts have enjoyed rapid growth in recent years as an increas­ing num­ber of employ­ers use them as a way to reduce risk and costs, improve over­sight and upgrade the invest­ment options avail­able to their employ­ees. While the work­place defined con­tri­bu­tion pen­sion mar­ket is expect­ed to grow by about 8.3% annu­al­ly until 2029, mas­ter trusts are expect­ed to grow by 20.8% per annum, accord­ing to Smart Pen­sion, which has grown rapid­ly to become one of the ‘big four’ auto-enrol­ment mas­ter trust providers on the basis of its inno­va­tion and sus­tain­abil­i­ty focus.

The val­ue for mon­ey (VFM) require­ment for occu­pa­tion­al pen­sion schemes with assets of £100m or less, which requires them to com­pare costs, charges and invest­ment returns against three oth­er schemes, is anoth­er dri­ver because mas­ter trusts can pro­vide economies of scale. Scale also means that mas­ter trusts are bet­ter placed to make the most of oppor­tu­ni­ties to invest into infra­struc­ture projects.

“It’s also about har­ness­ing the lat­est tech­nol­o­gy to improve the user expe­ri­ence,” explains Paul Buck­sey, man­ag­ing direc­tor of Smart Pen­sion. “This is impor­tant because, for exam­ple, with an age­ing pop­u­la­tion there is a need to focus on help­ing indi­vid­u­als con­vert their pen­sion sav­ings to income. Increas­ing­ly, we know that peo­ple plan to car­ry on work­ing, albeit part time, and so they’ll want to man­age their pen­sion income along­side any income from their work.”

It was their blend of finan­cial and tech­no­log­i­cal exper­tise that enabled Andrew Evans and Will Wynne to launch Smart Pen­sion in 2015. Today, the company’s glob­al aspect means that it can scan the sec­tor inter­na­tion­al­ly for best prac­tice. “Whether you’re an employ­er, an advis­er or a mem­ber, you can inter­act with Smart Pen­sion instant­ly. Some­one was com­plain­ing recent­ly to me about how it took five days with their old provider to change their address but with us you just go onto the plat­form and do it your­self,” explains Buck­sey.

Mas­ter trusts’ strong gov­er­nance and their use of trustees to reduce the admin­is­tra­tive bur­den on employ­ers, as well as their abil­i­ty to upgrade their invest­ment strat­e­gy with­out need­ing the con­sent of mem­bers when nec­es­sary, all form part of their appeal. With around 35 mas­ter trusts cur­rent­ly avail­able and com­pe­ti­tion inten­si­fy­ing, employ­ers look­ing to switch to a mas­ter trust might won­der how to choose the right one. We’re see­ing com­pa­nies trans­fer from their own trust-based pen­sion over to Smart Pen­sion for cost and fidu­cia­ry rea­sons, as well as to sim­pli­fy their pen­sions admin­is­tra­tion and upgrade the sup­port and guid­ance avail­able to their employ­ees.

Buck­sey says: “We know choos­ing sus­tain­able invest­ments that help to reduce the impact of cli­mate change, improve diver­si­ty and inclu­sion, and have a pos­i­tive impact on the world is at the front of people’s minds.”

As a result, Smart Pen­sion is ensur­ing that mem­bers can take advan­tage of new oppor­tu­ni­ties. More than 70% of its default growth fund is already invest­ed in line with envi­ron­men­tal, social and gov­er­nance (ESG) prin­ci­ples, with plans to increase this to 100% over the com­ing months.

“As well as growth in the sec­tor, we’ll con­tin­ue to see some con­sol­i­da­tion of mas­ter trusts over the next few years,” says Buck­sey. “And it’s clear that the win­ners will be the most tech­no­log­i­cal­ly enhanced, allow­ing them to pro­vide employ­ers and employ­ees with val­ue for mon­ey and an eas­i­ly acces­si­ble inter­face, as well as the oppor­tu­ni­ty to invest respon­si­bly while pro­vid­ing strong gov­er­nance, there­by reduc­ing the bur­den on employ­ers.”

For more infor­ma­tion please vis­it smartpension.co.uk

Pro­mot­ed by Smart Pen­sion