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Pensions, what to choose – master trust, own trust or GPP?


Employers face a tricky conundrum when deciding which type of pension arrangement to have in place for employees.

On the one hand, there will be times it makes sense for the business to have clear control of the scheme – during periods of corporate change, for instance – and others where leadership teams would prefer to relinquish responsibility so they can focus on developing the business, with the certainty that things are running as they should be.

Traditionally, Defined Contribution (DC) structures are presented as falling somewhere between delegation and control, with Group Personal Pensions (GPPs) at one end, own trusts at the other and master trusts in the middle.

Our experience, which I admit won’t be universal, is that employers want their workplace pension to offer the flexibility to change the things that make a difference – be that communicating creatively or allowing members to have a say over their investments – while delegating the things that don’t.

My advice for employers reviewing their workplace pension is always to begin with the end in mind. When comparing structures, focusing on the target outcomes in relation to three key elements can help them draw the right conclusion:

1. Administration
Administration can be time-consuming and complex, so it’s essential that employers understand who will be fulfilling this function under the arrangement they are looking at. Just as important is understanding the level of flexibility available and technology capabilities of the administration platform.

For instance, some bundled own trusts offer flexibility; others don’t. Some master trusts use a Third-Party Administrator and offer flexibility; others are merely a processing machine. Some consultant master trusts use a provider; others use their own administration business. It’s not entirely straightforward.

Understanding who’s responsible for the administration will allow you to get a true picture of who your members will interact with, and the likely quality of their experience.

2. Investment
The traditional view was that investments under GPPs are inflexible and can’t be changed at the employer’s behest. That’s less the case under modern contracts – it’s now possible for employers to build their own defaults. If you’re leaning towards a GPP, or think this is where you want to stay, check whether your contract gives you sufficient flexibility.

In contrast, while master trusts allow you to delegate all investment responsibility, this may mean sacrificing investment flexibility. Some master trusts allow you to build your own default to suit your employees’ needs, others don’t.

If being able to control the investments you offer members is important to you, don’t automatically discount GPPs or assume that master trusts will give you the flexibility you’re looking for.

3. Communications
Own trusts certainly give you the flexibility to communicate what you want, how you want (though it goes without saying that employers need to work closely with trustees to ensure any communications fit with governance requirements). And, if you use a bundled arrangement, your provider can support you.

Likewise, master trusts also offer lots of flexibility, with some offering very sophisticated tools and solutions to drive member engagement.

The difference is that even though you’re technically the master trust’s client as an employer, their trustee board will often control – or, at the very least, need to approve – member communications. So, it’s important to check just how much say you’ll have over this function.

If GPP is where you want to go or where you’re starting from, remember that personal pensions are subject to a different legislative regime and regulatory body (the FCA). This can mean more prescribed communications that are perhaps more generic and ‘compliance constrained’.

If control and flexibility of your pension communications is important to your business, trust or master trusts typically offer greater scope than GPPs, but do speak to your provider to clarify their position.

Of course, what’s right for one scheme may not make sense for another, and legislation means that your starting point will influence where you can end up. Focusing on the above areas should provide some food for thought on how to balance the needs of your business and employees, ensuring the scheme setup works for all.

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