DB master trusts - going Dutch
The expression “going Dutch” is well understood to refer to couples or groups of friends splitting their restaurant bill. It allows folk to pay their own way so they don’t leave feeling indebted to their fellow diners and equally so no-one has to pick up more than their fair share of the tab.
With maturing DB schemes the “tab” is certainly getting more scrutiny. Whilst there’s still more focus on size of liabilities and clearing deficits, the cumulative impact of running expenses shouldn’t be forgotten. There’s a really wide spread for what individual schemes pay in running costs. You’re looking at averages from as little as £200 per member for the very largest schemes to over £1,000 per member for small schemes
Like restaurant-goers, it really depends on your menu choices and what kind of establishments you’re eating at! If you’ve got a big wallet you may not feel constrained in your choices, but for everyone else, with more modest wallets, the bills need paying attention to.
Going Dutch is not just a habit for dining-out in the Netherlands, their pension schemes are at it too. The vast majority of Dutch occupational pensions are in collective arrangements like industry-wide schemes, or schemes with ring-fenced sections for different employers. These schemes split their bills which helps make their running costs more transparent.
Dutch pension schemes are regulated by the central bank (De Nederlandsche Bank) which requires, amongst other things, that schemes also disclose their running costs. Effectively, this shows everyone what restaurant their pension scheme is eating at and how much they’re spending there.
In a country like the Netherlands with a long history of collective labour agreements and member-representation on pension boards, there’s considerable interest in how members’ money is being spent. League tables of costs are published and these get a lot of attention, not just from members, but also from employers, unions and the media. So, there’s an interesting lesson - openness and transparency around costs promotes greater interest from members and other stakeholders.
Splitting the bills
Splitting the bills and transparency isn’t just for interest. Just take a look at the actions of schemes themselves. The regulator hasn’t prescribed cost hurdles for schemes to clear but raising regulatory standards, with disclosure of costs, has encouraged a process of consolidation.
Over the last 20 years there has been a wholesale change in the Dutch pension landscape. From over 1000 occupational pension schemes in the late 90s there has been a serious consolidation to around 250 schemes today.
Schemes haven’t gone off to bulk annuity policies, a government lifeboat or new-fangled commercial consolidators. They’ve just “gone Dutch”. Yes, clubbing together in greater numbers to split their bills.
Dutch single employer schemes, already a rarity, have moved into larger multi-employer or industry-wide schemes and master trusts. And the smaller of these collective schemes have been busy merging with each other to get bigger. This process of consolidation has lowered overall costs. And with easy comparisons of cost per participant it’s provided a tangible benefit from consolidation.
Splitting the bills hasn’t been the only driver. As the regulator raised the governance bar, the competition for quality services and resources also got stiffer. This in turn has led to big changes in the administration market and greater and greater use of technology.
Should the UK go dutch?
The Netherlands is a good way ahead of the UK in consolidation. As more and more UK DB schemes set out on the long journey to buy-out, it shouldn’t be a surprise to find many realising it’s better to make this journey with others. DB master-trusts, like Citrus, present the ideal solution to do this and “go Dutch”. Those that do will find safety in numbers from reassurance on service quality, good governance and of course splitting all their bills.
For more information on DB master trusts and how Citrus could potentially help your scheme, please contact us.