On the go: Master trusts are cutting prices by as much as 20 per cent to build up new business following authorisation from the Pensions Regulator, a consultancy firm has flagged.
According to Hymans Robertson, companies considering a move to one of these defined contribution schemes should act now to take advantage of the new pricing.
Earlier this month, the regulator finalised the authorisation process, with a final tally of 37 master trusts approved.
Michael Ambery, Head of DC provider relations at Hymans Robertson, explained that this is a significant milestone on the scheme’s path to maturity.
What we will now see is master trusts honing their customer proposition so that they offer an attractive alternative to employers that historically have run their own pension scheme
Adrian Boulding, director of policy at Now: Pensions
He said: “With TPR’s stamp of approval, we’ve seen that providers are significantly lowering their prices as they work to reach the business targets they have set themselves.
“Any DC scheme which has previously recognised the merits of a move to a master trust should seriously consider whether now is the right time for a move.”
Master trust benefits
Mr Ambery noted that the benefits of moving to these schemes are genuine.
“Savings in terms of governance efficiencies and member administration bring real efficiencies to a company’s pension function, without sacrificing member security,” he noted.
However, “while gaining these advantages, corporate sponsors need to ensure this competitive pricing also delivers the value and service they require for employees,” he stressed.
He added: “They must also recognise the quality offered by a master trust provider in comparison to the value and quality of any current arrangement and make the right decision for their own scheme.”
Keeping up with the business plan
Adrian Boulding, director of policy at Now: Pensions, noted that "a key criterion for authorisation was to demonstrate to TPR that the master trust has a clear vision for the future, including reaching the scale necessary to achieve economies and deliver real value to its members".
He said: "Each of the 37 master trusts now authorised will have shared their business plan with TPR and are under an ongoing obligation to report progress to TPR against the business plan’s targets.
"Many master trusts have enjoyed high rates of growth in recent years as employers have come through the staging process and begun their automatic enrolment duties. But with the staging complete, that avenue for growth is now finished.
"What we will now see is master trusts honing their customer proposition so that they offer an attractive alternative to employers that historically have run their own pension scheme."
Master trusts welcome CDC in decumulation
Several master trusts would welcome the ability to offer a collective defined contribution solution for their members in decumulation, after the government hinted at such a possibility.
Under the new registration process, master trusts have to hold enough capital to cover the cost of a worst-case scenario, such as the cost of transferring to another scheme or of winding up, without charging members.
The change in legislation prompted more than half of the 81 master trusts operating in the market in January 2018 to leave, partly because they realised their business could no longer be classed as a master trust, while some others entered.