How DB master trusts can gain their Blue Peter badge
As the DWP begins to reveal further plans of their DB master trust accreditation regime it made me wonder what exactly it means to be “accredited”. This accreditation regime isn’t the same as DC master trust authorisation where you must apply to participate in the market, it will be voluntary and won’t set bounds on the structure. The dictionary tells me accreditation is “the act of granting credit or recognition”, in layman’s terms, the equivalent of being awarded the highly esteemed Blue Peter badge.
For those of you who listened to our recent webinar with Julian Mitchell of DWP (click here) you’ll know that their current thinking is that the “accreditation” regime will look for DB master trusts to publicise information and key statistics, such as the costs per member. It looks to be an informal regime with a very practical purpose - to allow comparison between existing standalone arrangements and what DB master trusts can offer – and with the ultimate objective being to build confidence in DB master trusts, which government sees as a valuable “consolidation” solution. (The webinar explores a range of consolidation options.)
So, I thought it’d be helpful to share a few reasons why there should be confidence in DB master trusts, and in true Blue Peter fashion, here’s one that I (or rather a group of sponsors in the early 1990s) made earlier – the Citrus Pension Plan.
First you need glue - good governance arrangements. The Citrus Trustees are experienced in providing high quality governance, steering your pensions ship to safety. From the sponsor’s point of view this means they don’t need to commit significant amounts of management time, required of those sitting on their own trustee board. But the Citrus Trustees are flexible, giving sponsors the opportunity to sit on the Trustee board if they wish. Working flexibly extends to the investment and funding strategy, and although the Trustees will take the lead on this, their relationship with sponsors is crucial to them. They’ll collaborate and take the sponsor’s views into account before anything is put into practice. After all, Citrus was set up by employers, for employers.
Next up, putting the pieces together - economies of scale. By grouping many schemes together Citrus can provide core services needed to run a DB scheme for less. Up to 50% less in fact, or about £100,000 p.a. for schemes with around 500 members. In addition, with assets grouped together the buying power increases, meaning lower charges and in some cases access to more sophisticated asset classes. This gives the Trustees and sponsors the tools to manage their scheme towards its objective more effectively and at less cost.
Finally, keeping your model safe - long term objectives. The Trustees have a clear vision of slowly and steadily bringing schemes to a point where they have minimal reliance of their sponsors for funding support. The Trustees make use of their sophisticated asset portfolio and get schemes to this position in a well-managed fashion.
If buy-out is the target, Citrus has a track record of grouping schemes together and taking them to insurers. What can this offer? Reduced premiums, reduced wind-up costs and reduced adviser costs by taking advantage of those economies of scale again. The Trustees have seen savings of around £0.5m in costs across the board on buy-out transactions. An opportunity to bring buy-out targets closer to your reach.
You might like to build one of these yourself. DB master trusts won’t be the model for everyone – as no one form of consolidation fits all, but they can provide solutions to many schemes out there. DB master trusts are most likely to provide benefits to smaller schemes, of £150m assets or less. So, if you fall into this bracket and haven’t considered DB master trusts – why not?!
While DB pensions present many challenges, debatably none as frightening as working with animals and children on live TV, master trusts can help employers and trustees build affordable, practical solutions to deliver better outcomes with confidence.
For more information on DB master trusts and how Citrus could potentially help your scheme, please contact us.