DC master trust switch guide launched amid capacity crunch fears

Premier has published a master trust implementation guide for defined contribution (DC) schemes, outlining a suggested five-step process for the implementation of a project amid concerns of a potential "capacity crunch" in the master trust market.

The guide aims to support DC schemes in understanding the process for switching to a master trust arrangement, and was created in response to new governance requirements.

Premier warned that these new requirements will “dramatically accelerate” the consolidation of DC schemes and create a “capacity crunch” around master trust switching projects, noting that The Pension Regulator's impending value for member assessments are also expected to speed up consolidation.

Considering this, and the popularity of master trusts as a consolidation option, Premier has warned that trustees who delay a decision to switch may face challenges in terms of timing and securing favourable commercial terms from providers.

Premier head of DC consulting and technology, Sue Pemberton, stated: “DC consolidation is set to snowball rapidly this year as many small schemes will struggle to demonstrate they provide value for members when the Regulator’s new assessments come into force.

“Such schemes are likely to add to the intense interest we are already seeing for master trust arrangements, but trustees who have yet to consider their options may find themselves disadvantaged.

“We expect the master trust market will harden and it will become more difficult to obtain favourable terms from a provider.

“At the same time, a ‘capacity crunch’ among the advisers required to support the implementation work will leave many schemes struggling to secure a slot to transition to a new scheme.

“We have launched this guide to help trustees get ahead of the process to understand whether a master trust is right for their scheme and what they need to do to deliver the best possible transition.”

The guide has outlined five suggested stages for a master trust implementation project, starting with strategy, which included a review of the scheme, benefits complexities, legal advice, and associated benefits.

It noted that some schemes are more complex and have members with benefits that cannot be so easily transferred, stating that it is important to identify these issues at the start to avoid complications and wasted time later in the process.

Selection was highlighted as the next important step, including internal research, provider tender, shortlisting and selection process, with specific attention bough to TPR guidance that an appropriate adviser who is independent of the receiving scheme should provide advice.

The next step was implementation, including data cleaning, communication and consultation, legal documentation and the transfer of assets, followed by a wind-up, including TPR notification and resolving outstanding liabilities.

The guide also highlighted management through an ongoing process as an "important element" in the running of the scheme, with the final stage of the process, business as usual, identifying tasks such as drafting governance committee terms of reference and establishing the committee.

In addition to this, the guide noted that whilst the overall duty of trustees is to act in the interest of members and in line with the Trust Deed and Rules, there are additional considerations specifically related to this type of project that they will need to consider.

In particular, it recommended that trustees seek advice from appropriate advisers, including legal and pension consultants, highlighting the independence of advisers as a “key consideration”.

It also noted that the Department for Work and Pensions recommends that trustees obtain written confirmation from the chosen advisers of all work their firm carries out on behalf of the receiving master trust, in line with the expected internal controls to manage any conflict of interest.

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