Playground chatter: the developing master trust market
22 May 2017 - Estimated reading time: 5 minutes
Currently, the majority of my working day is all about master trusts - it’s undeniably the ‘hot topic’ of the moment. Even in the playground, where I do my best to deny all knowledge of anything pension-related, a fellow parent was chatting about changes at work and mentioned master trusts. I forgot myself and enthusiastically launched into chapter and verse but it’s clearly nowhere near as exciting as the stories from the dad who works as a test driver for Aston Martin. (Perhaps it’s time for a career change..)
We all recognise that the market has developed considerably over a relatively short period of time, but there’s definitely been a further gear change of late and a distinct hike in activity. On the back of this, pockets of the market are really buoyant, with certain providers enjoying considerable success.
We all know, however, that it’s impossible for all to remain viable. Success and sustainability requires scale and, with the best will in the world, that’s not going to happen for everyone. We’re seeing signs of the market contraction and providers quietly deciding to throw in the towel, rehome members and exit ahead of the tightening legislation. The move towards tighter controls, is welcome and will ultimately ensure greater consumer protections, but we need to absolutely make sure that consolidation is controlled and orderly so to avoid chaotic exits.
The issue of conflicts of interest in this space is still bubbling away and is something which really needs to be addressed and tidied up soon (that issue being consultancy-run master trusts tipping existing clients into their own model without wider market consideration). But in our experience, Employers and Trustees see this and very much acknowledge the importance of the independent assessment and procurement that we provide (which will include the assessment of consultancy-run master trusts).
Notwithstanding the conflicts of interest question, a number of the consultancy-run propositions have pretty compelling propositions and are gaining traction in the market. We see a greater use of technology and a greater emphasis towards member engagement and communication in this space, with some of the more traditional providers now trying to play catch up. Whilst we’re seeing significant development on the whole, the consultancy-run propositions are driving the evolution somewhat, sometimes having a fresher perspective and sometimes having the ability to look at things differently.
What we’re seeing in the market, and general interest in master trusts, is set to continue. The 2018 AE minimum contribution increases will be a factor which will influence growth and assets under management, although that needs to be balanced with the potential of higher levels of opt outs than what we’ve seen so far. But let’s wait and see.
I’m also hopeful that by remedying the unnecessary complexities associated with the DC - DC bulk transfer requirements (specifically where member consent is not obtained) that we’ll see further market fluidity and interest. It’s been clear for quite some time now that the prevailing requirements are not suited to DC to DC transfers and are at odds with the current pension landscape and direction of travel. I’m hopeful that the legislative requirements will be adjusted to allow for a more pragmatic approach, remove the barriers that we currently see, whilst ensuring that members' interests remain protected and be at the heart of any new directions.
It seems that interesting times lie ahead so maybe not quite time for a career change just yet...