University of Birmingham replaces GPP with master trust

Contract-base pensions have been the status quo among employers, but are losing their grip on the market. According to Willis Towers Watson’s 2018 UK pension strategy survey, 50 per cent of organisations have a GPP or stakeholder plan, 34 per cent have a single-employer trust-based scheme and 4 per cent have a group SIPP.

While 12 per cent of employers said they deliver their pension arrangements via a master trust, the research showed that this figure is expected to rise to over 1-in-4 schemes in the next three years.

If there are concerns over the GPP provider, and you’re saying, ‘Right, we want to move away from this provider because we’ve got some concerns,’ you then might as well take a step back and say, ‘Going forward, what structure is best?’

Mark Futcher, Barnett Waddingham

An update on the University of Birmingham’s intranet shows that the University of Birmingham Group Personal Pension Plan, which  was administered by Aviva - formerly Friends Life - was replaced by a new scheme operated under a master trust, administered by Legal & General.

‘Control for the future’

An FAQ document for members explains that, following a regular review, “a decision was made to strengthen the pension arrangements for members by moving to a master trust arrangement”.

It notes that employers have a legal responsiblity to provide staff with a pension arrangement which they believe is appropriate “bearing in mind the likely characteristics and needs of the membership”.

It added that they are required to review this, particularly where the arrangement is used to fulfil auto-enrolment duties.

“Following a review of our pension arrangements, it is our view that arrangements such as the University of Birmingham Group Personal Pension Plan do not provide sufficient flexibility to ensure that these duties are met in full in the future,” the document states.  

Members can transfer their existing pots from the GPP into the new scheme if they choose to do so.

The document states that, once the first contribution has been made to the new scheme, Legal & General will contact each member to outline their options and help with a transfer, should that be required.

It will also highlight the issues members will need to consider before transferring any pension rights.

“It is important to ensure that a transfer is the right decision for you,” the document highlights, adding that members can seek appropriate independent financial advice to make sure any such transfer is in their best interests.

A university spokesperson says: “A master trust was selected to provide some control for the future, via the trustee, over the investment options and communications, making us better placed to respond to any future pension changes.”

The spokesperson adds: “It also provided an opportunity to update the default investment option and lifestyle options to support the new Pensions Freedoms available to members.”

An unusual switch

Mark Futcher, partner and head of defined contribution at Barnett Waddingham, says: “Moving from a GPP to a master trust - that’s quite an interesting area, not something that we’ve seen a lot of.”

He notes that master trusts have the advantage of the oversight of a trustee with the fiduciary duty to act in the best interest of members.

“But on the flipside, the innovation that’s coming to the DC market - we’re seeing quite a lot of that put into the GPP space first, and then slowly being adopted by the master trusts because they need to seek the agreement of those trustees,” Mr Futcher says.

Most providers - where they have a GPP and a master trust - are using the same administration or investment platform and digital technology, so the experience for members is very similar.

Mr Futcher says that it would therefore be very unusual for a client to move from a GPP to a master trust product with the same provider.

However, “if there are concerns over the GPP provider, and you’re saying, ‘Right, we want to move away from this provider because we’ve got some concerns,’ you then might as well take a step back and say, ‘going forward, what structure is best? Is it a master trust? Is it a GPP?’”

Moving from a GPP with one provider to a master trust with another provider would probably be the same amount of work as switching from one GPP to another, he adds.

Moreover, “if you do want to move those members’ monies in future, it becomes a lot easier moving it from a master trust to a master trust because you can do it en bloc, as long as both sets of trustees agree”.

With a GPP, on the other hand, individual member consent is generally needed to move the money.

Mr Futcher says that Aviva has several different platforms. “It could have been on a very old administration platform, their group personal pension plan product, and actually moving from an old administration platform to a new administration platform with Aviva - it’s almost just as much work as it is moving to a brand new provider,” he says.

Aviva did not respond to requests for comment.

Erring on the side of caution

The window for master trusts to apply to the Pensions Regulator for authorisation opened in October 2018 and closed on March 31 2019.

A total of 38 authorisation applications have been submitted by master trusts, the watchdog revealed on May 14.

So far, the schemes that have been granted master trust authorisation and listed on the regulator’s website include The BlueSky Pension Scheme, The Crystal Trust, Legal & General WorkSave Mastertrust, Legal & General WorkSave Mastertrust (RAS), LifeSight and the Universities Superannuation Scheme.

The University of Birmingham spokesperson says that the master trust went live in August 2018, “and so was in place before the new authorisation process came into being”.

During the authorisation process, however, many employers and trustees looking to move to a master trust will have decided to wait and see which schemes get authorised before making a decision.

Mr Futcher says that “we have erred on the side of caution”. Clients were advised that, if there is no burning platform, it would be a good idea to wait until authorisation is granted. 

He adds that it was always fairly likely that the L&G master trust was going to become authorised, and that it would probably only have been an issue for smaller employers moving their scheme to one of the smaller master trusts.

Nicola Rondel, counsel at law firm Hogan Lovells, says that “we have had some employer/trustee clients who have gone ahead with a bulk transfer to a master trust despite the fact that the master trust concerned has not been authorised”.

She adds that there have also been others who have held back because “they didn’t want to take the risk that, for whatever reason, their chosen master trust did not get authorised”.

Regulator takes risk-based approach

Employers who have an occupational pension plan but want to shed some of the obligations involved can select either a master trust or a GPP.  

“Many choose a master trust because a trust-based scheme is a familiar pension vehicle and having trustee oversight can be reassuring,” says Ms Rondel, adding that master trusts can seem like the more paternalistic choice.  

“The fact that master trusts must now be authorised and will be subject to Pension Regulator supervision will also reassure employers, although in practice GPPs should be no less ‘safe’,” she adds.

In a recently published TPR blog, Kim Brown, head of master trust authorisation and supervision, said that as part of supervision master trusts “will be expected to be open, honest and transparent and proactively volunteer information to us about any material developments, risks and issues”.

The watchdog will take a risk-based approach to supervision and how often it interacts with authorised schemes will depend on a number of factors, including the size of the scheme or any particular issues or risks which are present.