Metal Box members headed for master trust under DB closure plans

The proposed DB closure and move to a DC master trust follow two major trends in the pensions industry.

I think it’s quite brave to actually say, ‘Yes, I have confidence that this is going to go through’

Maria Nazarova-Doyle, JLT Employee Benefits

Forty per cent of DB schemes are now closed to future accrual, up from 20 per cent in 2010, according to the Pensions Regulator’s 2018 DB landscape report.

Meanwhile, when it comes to DC arrangements, there is an increasing appetite among employers for master trusts as companies look for a one-stop shop vehicle – from professional governance to the ability to offer decumulation solutions.

Willis Towers Watson’s 2018 UK Pension Strategy Survey shows the number of companies choosing to use a master trust as their main DC vehicle could more than double in the next three years.

Higher contributions proposed

Carnaud Metalbox Group UK is the principal company behind the £2.4bn DB Metal Box Pension Scheme, and the participating employers are Crown Aerosols UK, Crown Packaging Manufacturing UK, Crown Packaging Distribution UK, Crown Promotional Packaging UK, and CarnaudMetalbox Engineering.

In an information pack for active members of the Metal Box Pension Scheme, Sidonie Lécluse, vice-president, human resources at Crown Packaging Manufacturing, announced proposals to close both the scheme and additional voluntary contribution plan to future accrual from March 31 2019, replacing them with a new DC scheme.

Ms Lécluse, writing for and on behalf of the other employers, states: “The company wants to make sure the pension benefits it offers are competitive and flexible, while being affordable and sustainable for all its employees and for itself.”

The Metal Box Pension Scheme 2018-19 winter report to members shows that under the proposals all members’ savings in the current DC section of the scheme would also transfer to the new DC plan.

A period of consultation on the changes, which began on October 11 2018, has now come to an end.

The company has not disclosed whether the proposals are going ahead, but an announcement on the pension scheme website states that the site “will be updated over the coming months to reflect the scheme closure”.

The Q&A document states that the company would contribute more to the new DC plan compared with the current DC section, and contribution rates would no longer depend on the employee’s age.

Under the current DC arrangement, the company will match employee contributions of 3 per cent. Then, depending on age, the company will pay between 3.25 per cent and 4 per cent for members paying in 4 per cent.

For members paying in 5 per cent, the company will pay between 3.5 per cent and 5 per cent, and for those paying in 6 per cent, the company will pay between 3.75 per cent and 6 per cent.

Under the proposed new arrangement, if members pay in 6 per cent or more they would get the maximum company contribution of 9 per cent.

Sponsor eyes Aon despite lack of authorisation

The company says it intends to use a master trust to provide DC benefits, citing the economies of scale available, and has considered various providers.

According to the information pack, “should the proposal go ahead, the likely provider would be Aon”.  The proposals highlight that the consulting giant’s scheme offers flexi-access drawdown directly. Employees would start to build up benefits in the new DC scheme from April 1 2019.

At the time of writing, the only master trust currently listed as authorised on the Pensions Regulator’s website is Willis Towers Watson’s Lifesight.

Aon’s application submission is imminent pending final documentation in the next few days, according to a spokesperson.

Employers waiting for authorisation outcome

Nearly three quarters of respondents to Willis Towers Watson’s 2018 UK Pension Strategy Survey said they were planning, or considering a review of, their DC pension vehicle.

Twelve per cent of organisations surveyed used a master trust for their main DC pension scheme, with 26 per cent expecting to do so in the next three years.

Master trusts have had since October 1 2018 to apply for authorisation from the Pensions Regulator or exit the market. Applications close on March 31.

The watchdog has identified 90 master trusts in the market, and as at January 31 2019 it has received eight applications for authorisation.

Maria Nazarova-Doyle, head of DC investment consulting at JLT Employee Benefits, says that this need not necessarily worry companies selecting a new master trust, if they have done their due diligence.

However, Ms Nazarova-Doyle says that authorisation has been a labour-intensive and difficult process for many, and no master trusts seemed to get an “all-star pass from the readiness review – everybody had homework to do”.

“This authorisation has been so in depth and kind of a total new level from what the industry’s used to,” she notes.

“I think it’s quite brave [of Metalbox] to actually say, ‘Yes, I have confidence that this is going to go through’,” Ms Nazarova-Doyle says, adding that “even the best of the best probably should have a degree of worry – whether they’re going to make it or not”.

Other companies, she says, have delayed their decision or provisionally selected a master trust, subject to the provider achieving authorisation.

When selecting a master trust, Ms Nazarova-Doyle argues that employers should focus on DC investment as the most important factor in determining retirement outcomes. Contribution levels are set separately, and the charge cap keeps a lid on costs.

“It pains me to see employers select a master trust on cost where they should be selecting it on investment – on the quality of investment, on what they’re projected to deliver, what the expectations on returns are, because that’s the most important contributor,” she says.

DC for all claimed to be fairer

In its closure proposals, Carnaud Metalbox argues that “fairness and equality for all employees has been a key consideration in the company’s proposals”.

The scheme’s DB section had 525 active members, 3,744 deferred members and 12,559 pensioner members at March 31 2018, while the DC section had 1,564 active members and 659 deferred members.

In 2001, the DB section of the scheme closed to new members. A 2016 valuation reveals that the cost to the company of providing new benefits in that section reached 37.3 per cent of members’ pensionable salaries, less additional contribution.

“This increasing cost has further highlighted the disparity in members’ retirement outcomes and, combined with the cost variability, has affected the company’s ability to invest in the business and remain competitive,” the document states.

The Group proposes to offer all employees the same DC contributions. According to Liam Mayne, partner at consultancy Barnett Waddingham, this is relatively unsusual.

“You often end up with a two-tier structure – those who are ex-DB getting more paid into DC than those who have never been in DB,” he says.

Emphasising DC flexibility

When switching to DC, Mr Mayne says that companies often emphasise the flexibilities available in DC compared with the rigid guaranteed nature of a DB benefit.

He adds: “At the moment there’s got to be one eye on the authorisation process. That is driving some master trusts out of the market essentially, so I would certainly be looking at which are most likely to come through that authorisation process unscathed.”

Once a company has considered this, it is then important to look at the flexibility afforded to members in how they access benefits, the communications and tools available to members, governance arrangements, investment options and charges.