Move to DC master trust – good value for members and sponsor

Context

A long-standing, successful manufacturing firm based in Yorkshire, operated a small DC trust-based scheme alongside a group personal plan for auto-enrolment purposes. The in-house trustees were about to retire and approached IGG to consider moving to a sole trustee arrangement.

The challenge

While the pension trust was exceptionally well-governed, IGG raised the option of an authorised master trust to combine all the company’s future pension needs. Some time ago, Stelrad had looked at master trusts but were unsure whether the pricing could match or better their current arrangements, which were already competitive. They were also unsure whether their aged-based contributions structure could be accommodated by master trust providers.

Our approach

IGG met with The Group Financial Controller and Chair of Trustees as well as its long-term legal and investment advisers, all of whom had advised the company on its pension arrangements for many years. It was agreed that in the recently authorised master trust market, attractive terms were possible for the firm’s DC trust and auto-enrolment members. Looking ahead to upcoming regulatory and compliance changes on the horizon for small defined contribution schemes, it also seemed that the company might be better off outsourcing pension governance responsibilities, with both costs and risks potentially reduced.

An initial market review was undertaken by the scheme’s pension consultant to obtain indicative terms from a long list of authorised master trust providers. It was soon clear that the move to master trust could achieve good outcomes for both company and members. The firm drew on one of its experienced engineering project managers to lead the process, and IGG was appointed to the Trustee board to support the trustee governance and decision-making.

The company’s HR and finance teams worked together with the trustees throughout the selection, consultation, and transfer process, while taking separate, independent advice and decisions where appropriate. Members were kept fully informed along the way, so they understood their options.

The outcomes

Over the following 12 months, the company established a new section with an authorised master trust for all ongoing employee pension contributions. The existing scheme was fully wound up and members’ trust-based pots transferred to the new arrangement. 60% of members in the GPP consented to their pot following suit. Default fund fees for members were on average 40% lower than the previous arrangements and the company’s direct costs and risks of governing an inhouse scheme fell away.

Members also gained access to high quality communications and support services, as well as at-retirement guidance and drawdown when needed. Despite the challenges of the corona virus pandemic and property fund suspensions, the move to master trust was fully completed within the year.