Master Trust: What You Need to Know

A master trust is a type of retirement plan that allows multiple employers to contribute to a single trust fund, providing a cost-effective way to offer retirement benefits to employees.

This setup allows for economies of scale, reducing administrative costs and making it easier to manage the plan.

Master trusts are often established by third-party administrators, who take care of the day-to-day operations and ensure compliance with regulations.

By pooling resources, master trusts can offer a wider range of investment options and more competitive fees than traditional employer-sponsored plans.

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A master trust is a multi-employer occupational pension arrangement where employers operate independently, but are overseen by a single trustee board.

Employers within a master trust are not connected to each other, and they have their own separate segments.

A master trust is overseen by one trustee board providing governance independent of the participating employers and provider.

It can also refer to the main fund where assets are pooled and collectively managed in a master-feeder structure, also called a hub and spoke structure.

Employers can use a master trust structure for pooling investments in an employee benefit plan.

Choosing a master trust can bring numerous benefits to your pension scheme. One of the key advantages is the comfort of knowing that members' pension savings will be managed within a robust governance and strictly regulated framework.

This framework provides ongoing control of contribution rates, allowing you to tailor these rates to suit your needs. You also have the option to create bespoke communications for your employees.

By choosing a master trust, you can continue to offer employees the advantages of a trust-based pension scheme. This type of scheme is often preferred by employees due to its stability and security.

Shared investment governance may also be possible within a master trust pension scheme, allowing for more efficient management of your investments.

Outsourcing deferred member accounts to a reliable trust-based arrangement can help you streamline your administration and accounting processes.

This can lead to significant cost and time savings, with little to no impact on your members.

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A master trust can take various forms, with one type being a unit investment trust, which pools shareholder investments and includes diversified holdings managed to a specific strategy.

A unit investment trust may have a specified duration with a predetermined maturity date, providing a clear endpoint for the investment.

Another type of master trust is an employee benefit plan, where a company establishes a master trust for which they and their employees collectively contribute investments.

An employer can also choose to pool assets with other companies in a master trust specified with clear objectives and segregated reporting.

A master trust is typically set up by a provider, often an insurance company, with one legal trust and one trustee board.

Each participating employer has one or more sections within the master arrangement, with the trustee taking on governance responsibility for each section.

Here are the main types of master trusts:

There are two main types of master trusts: Unit Investment Trusts and Employee Benefit Plans.

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A Unit Investment Trust is a type of master trust that pools shareholder investments and includes diversified holdings managed to a specific strategy. It can have a specified duration with a predetermined maturity date.

Employee Benefit Plans may also use a master trust to collectively manage assets for employees. Employers can establish a master trust for which they and their employees collectively contribute investments.

Here are the key characteristics of these two types of master trusts:

Companies often use a master trust because it simplifies the process of managing employee benefits.

A trust based pension scheme is typically established by an employer for its employees. The employer's representatives usually form the majority of the trustee board.

In a master trust, the setup is different. It's typically established by a provider, often an insurance company.

There is one legal trust and one trustee board in a master trust.

Each participating employer in a master trust has one or more sections within the master arrangement.

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Master trust pension schemes have a governance structure that's separate from their provider, but many have questioned the independence of the trustee boards. In response, a voluntary assurance framework was developed to provide independent assurance reports for the trustees of master trusts.

The framework was designed to evidence the key quality features set out in The Pensions Regulator’s code of practice for defined contribution schemes. This is a crucial step in ensuring that master trusts are held to high standards of governance and management.

There are 36 authorised master trusts in the UK, all of which meet The Pensions Regulator's exacting requirements and are subject to rigorous ongoing scrutiny. This ensures that members can take comfort in knowing their retirement savings are protected and managed to the highest standard.

In fact, a recent survey by The Pensions Regulator found that master trusts performed better on each measure of providing value for members than the wider trust-based environment. This is a testament to the effectiveness of the governance and management structures in place.

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The largest DC master trusts in the UK are provided by bulk market auto-enrolment solution providers, employee benefit consultancies, and insurers. These providers often have more resources and expertise, which can be beneficial for larger schemes with more members.

However, smaller employers may be restricted to using the bulk market auto-enrolment solution providers, which can limit their options and control over their scheme. This is something to consider when choosing a master trust pension scheme.

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Master trusts are designed to pool the scale of several employers, allowing for access to economies of scale in investments and administration.

It's common for pension schemes in the UK to have fewer members than schemes in other nations, which means they're less able to capture these savings.

Some master trust providers may charge participating employers a set-up or implementation fee, but ongoing employer fees are unusual.

In the UK, it's common for pension schemes to have fewer members than schemes in other nations, making it harder to capture economies of scale in investments and administration.

Master trusts aim to provide access to these savings by pooling the scale of several employers. However, the UK Government has introduced a cap on fees for automatically enrolled members of pensions schemes to prevent overcharging.

It's normal for the sponsoring employer to cover the running costs of its trust-based scheme, with members having some exposure to investment fees. The employer may also be charged a set-up or implementation fee by some master trust providers.

Following the Pensions Act 2008, the UK Government implemented a cap on fees to protect members from overcharging. This cap is in place to ensure that members are not unfairly burdened with high fees.

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In many large multinationals, HR transformation has led to the elimination of local HR teams in small- and medium-sized countries.

Local experts who can advise on investment strategy, investment manager selection, or member investment choices are scarce.

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Few companies have the bandwidth to effectively monitor investment manager performance with the resources they have.

Managing pension plans with internal resources becomes increasingly difficult due to scarcer resources and less bandwidth.

Master Trusts offer a scale that allows access to a broader range of investment sectors at potentially lower costs than single-employer plans.

The responsibility of selecting investment managers and monitoring performance and fees sits with the Master Trust trustees or fiduciaries.

Managing a retirement plan has become increasingly onerous for companies due to growing regulation and legislation.

Fewer employees are willing to take on the time and personal liability required to become a trustee or fiduciary.

The high fixed cost of maintaining a retirement plan can push companies to seek economies of scale through pooled arrangements.

Complex and technical issues, such as investment management fees in the US and auto-enrolment contribution payments in the UK, have led to an increase in litigation against retirement plans.

Administration and disclosure requirements are very detailed and specific, which can be difficult for multinational companies to manage.

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We've learned a lot from our experience with the Atlas Master Trust acquisition in 2021. We acquired it and are using that experience to make sure the next consolidation goes smoothly.

The key takeaway from this case study is that experience gained from previous integrations can be invaluable in ensuring a smooth consolidation process.

We're using the knowledge we gained from navigating the Atlas Master Trust's integration to inform our approach for the next consolidation. This will help us avoid any potential pitfalls and ensure a seamless transition.

The Atlas Master Trust acquisition was a significant milestone for us, and we're proud of how it has contributed to our growth and expertise in the field of Master Trusts.

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A master trust is an investment vehicle that pools investments from multiple employers, simplifying the process of managing employee benefits and keeping management costs down. This structure is often used by employers who want to offer a range of investment options to their employees.

Employers can choose to use a master trust structure for their employee benefit plans, which can help reduce costs and mitigate risks. By pooling investments, employers can benefit from economies of scale and potentially lower charges.

A master trust typically has a portfolio manager who oversees the assets in the trust, ensuring that they are invested in a way that maximizes returns while minimizing risk. This can be a more efficient way to manage investments than having each employer manage their own plan.

Here are some key benefits of using a master trust:

By using a master trust, employers can also provide their employees with a range of investment options, including greater investment choice and better online account management. This can lead to improved member outcomes and a more positive experience for employees.

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Not all master trusts are created equal, varying significantly across investment strategy, governance, administration, and member engagement proposition.

There are 36 authorised master trusts in the UK, all meeting the Pensions Regulator's exacting requirements and subject to rigorous ongoing scrutiny.

Master trusts can be provided by bulk market auto-enrolment solution providers, employee benefit consultancies, and insurers, with some targeting larger schemes and others offering more options for larger employers.

Smaller employers may be restricted to using the bulk market auto-enrolment solution providers, with less control and fewer options.

The extent to which master trust pension schemes offer future proofing varies, with most tied to particular administrators and fund managers, while a small number operate a more openly structured model.

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While master trusts may not be identical, they do share some similarities in their approach to governance. Master trusts are subject to authorisation and supervision by the Pensions Regulator (TPR), ensuring that they meet certain standards.

Master trusts have demonstrated greater rigour, thoroughness, and consistency in scheme management and governance compared to the wider market. This is evident in TPR's surveys, which have shown that master trusts perform better on measures of providing value for members.

One notable similarity among master trusts is their investment strategy, which can vary significantly. However, some master trusts have shown to perform better than others in providing value for members.

Master trusts have also shown to be more effective in administration, member engagement, and governance, according to TPR's surveys. This has led to a rise in membership, with 20.7 million members in the past two years alone.

There are 36 authorised master trusts in the UK, all meeting the same rigorous requirements and subject to ongoing scrutiny.

The largest DC master trusts in the UK are provided by bulk market auto-enrolment solution providers, employee benefit consultancies, and insurers.

Smaller employers may be restricted to using bulk market auto-enrolment solution providers, which can limit their control and options.

Those with more members may be able to access wider options through other master trust providers, including shared investment governance and member communications.

Most master trust pension schemes are tied to particular administrators and fund managers, limiting their ability to adapt to changing market needs.

A small number of master trust providers operate a more openly structured model, allowing them to change providers as needed to stay ahead of the market.

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Defined benefit plans can be harder to transition, especially if a separate section isn't available under the Master Trust to avoid cross-subsidies between participating companies' sections.

In some countries like the UK and Netherlands, sectionalized arrangements can still provide scale economy benefits, even with ongoing relationships with legacy employers.

A Master Trust without the ability to administer member benefits in different sections would need a carefully designed entry price mechanism to avoid diluting existing member benefits' security.

This requires bespoke regulation, as seen in the UK, to ensure the security of existing member benefits is maintained.

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A master trust is designed for employers who are dealing with complex pension issues.

Employers with multiple pension schemes can benefit from a master trust, which can simplify their responsibilities and help them navigate regulatory changes.

A trustee board takes care of keeping up with regulatory change, freeing up employers to focus on other tasks.

We're a master trust provider that can help you manage your pension scheme with ease. We have a team of experienced professionals who will support you every step of the way, from day-to-day administration to relationship management.

Our dedicated administration director will work closely with you to understand your scheme's needs and provide tailored support. This means you can focus on running your business while we take care of the pension scheme.

We're committed to integrating environmental, social, and governance (ESG) considerations into our investment decision-making. This ensures that your pension scheme is invested in a responsible and sustainable way.

Our size allows us to negotiate lower operating costs, which means your employees can pay less in fees. This is a significant advantage, especially in today's competitive job market.

We keep pace with the ever-changing legal and regulatory requirements facing DC schemes, so you don't have to worry about staying up-to-date. This gives you peace of mind and reduces the administrative burden on your business.

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Here are some of the benefits of working with us:

By working with us, you can be confident that your pension scheme is in good hands. We're committed to providing a high level of service and support to ensure the success of your scheme.

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A master trust is geared towards employers grappling with regulatory issues. They can benefit from economies of scale, which can drive better value for members.

Employers may also benefit from having the trustee board handle regulatory changes, freeing them up from that responsibility. This can be a huge time-saver for busy business owners.

Employers who want to simplify their pension arrangements may find a master trust a good fit. It's a way to streamline their processes and focus on running their business.

A master trust is an investment vehicle that collectively manages pooled investments. This structure can be a game-changer for employers looking to simplify their employee benefit plans.

A portfolio manager is responsible for overseeing the assets in the master trust. This means you can trust that your investments are in good hands.

Employers can use a master trust structure for pooling investments in an employee benefit plan. This can help reduce management costs and make it easier to manage your benefits.

By using a master trust, employers can keep management costs down. This is one of the main reasons many employers choose this structure for their employee benefit plans.

Here are the key benefits of using a master trust: