PA Annual Conference 2020: DB master trusts not a loss of control, says TPT

Pension scheme sponsoring employers and trustees should avoid equating defined benefit (DB) master trust consolidation with a loss of control, according to TPT Retirement Solutions business development director, Paul Murphy.

Speaking at the Pensions Age Annual Conference 2020, Murphy highlighted that whilst many trustees are concerned over a loss of control when considering master trust options, the actual gain to the scheme can be “significant”, especially amid the Covid-19 pandemic.

Murphy stated that TPT is often approached, in the first instance, by a sponsoring employer looking to save on costs, warning that this can often be perceived as a “Machiavellian move” by scheme trustees.

However, he clarified that in practice, most schemes have used savings to fund the scheme and reduce liabilities, improve member experience through better technology, and access affordable investment vehicles, ultimately resulting in more secure member outcomes.

He also highlighted that the investment strategy is set at the scheme level, and is tailored to their specific needs in terms of risk, hedging, and their long-term goal, whilst also benefiting from the economies of the back office pooled resources.

He noted that this can be particularly valuable in the current landscape and the pandemic has likely bought a renewed focus to, and strengthened the argument for, DB master trusts and consolidation.

Murphy stated that this would be especially true amongst sponsoring employers and financial directors, who will be looking to preserve costs and jobs, emphasising that the savings from joining a master trust can run into “hundreds of thousands a year”.

"The crisis has been a real headache for trustees," he added, noting that trustee boards have been challenged throughout the pandemic from a crisis management point of view.

He emphasised, however, that transferring to a DB master trust can help with governance issues, as well as issues around investment volatility, which have “exercised both financial directors and trustees alike” during the pandemic.

He added: “The recent government white paper on consolidation clearly demonstrated the benefits of pooling resources and the economies of scale which can be achieved, and they indicated that larger schemes of lower costs tend to have more robust governance and enjoy affordable access to investments which better match their liabilities and long-term funding targets.

"It's all about working together to get the best result for all parties."

However, Murphy added that a "fair bit of resistance" remains from vested interests.

He continued: "We have to recognise that we are taking away significant fee income from the adviser community, and even though most of that goes back into the scheme, they look for every reason to resist transferring to a DB master trust.”

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