Master Trusts are becoming the the Defined Contribution (DC) arrangement of choice for more and more employers, and the desire for strong, effective and independent governance is at the heart of their popularity.
Why does governance matter so much though, and what should Master Trusts be doing to live up to that expectation?
A brief history
Let’s start with a quick history lesson – when alternatives to Defined Benefit (DB) schemes were originally considered back in the 1990s, many employers chose to set up their own trust-based DC scheme (or add a DC section to their existing trust). Then some insurance companies started to market the ‘grouping’ of retail personal pension policies and Group Personal Pensions (GPPs) became available. Some employers, particularly smaller ones, then began to use these, primarily driven by cost considerations, but the wholesale change from single trust schemes to GPPs never really happened. At the end of the day, everyone realised that GPPs weren’t actually designed for the workplace and there were some fundamental barriers to them really becoming effective – not least the lack of governance focused on driving better member outcomes.
Master Trusts then emerged and showed that they can harness the best of trust-based pension provision with the low-cost, less involvement advantages of GPPs – with the in-built independent governance of Master Trusts really delivering the killer blow to GPPs.
If the main driver for the move to Master Trusts is Governance, there is a big responsibility on all Master Trusts to ensure this faith is repaid in the way the scheme is run and, therefore, ultimately providing the best possible outcome for members.
Governance in Master Trusts The new authorisation regime is a welcome ‘raising of the bar’ and gives confidence in those that are authorised, but it is only a minimum acceptable level and Master Trusts can, and should, go well beyond that and put Governance at the heart of everything that they do.
Master Trusts should be looking to move beyond the traditional governance model focusing on Process, Risk and Operations.
A good Master Trust should build on the above and also embrace proactiveness, effectiveness and relevance – or ‘PROPER’ governance. We know what Process, Risk and Operations entail, but what does Proactivity, Effectiveness and Relevance involve?
+ Constantly striving to do better
+ An agile and empowered governance team
+ Forward looking and innovative
+ Emphasis on dynamism, not bureaucracy
+ Clearly structured meetings, with defined outcomes
+ Alignment of all stakeholders with the aims of the scheme
+ Capturing the ‘voice of the member’
+ Culture of continuous improvement
+ Driving member and employer engagement
With the continued growth and popularity of Master Trusts, we should see them all adopt a ‘PROPER’ governance model to maximise member outcomes and repay the faith that employers are placing in them. However, governance models do vary significantly across different Master Trusts today and the first and last question that anyone involved in selecting a Master Trust should ask is does the scheme have a PROPER governance structure in place?
By Anish Rav
Head of Client Strategy – Atlas Master Trust