News / 01.10.18

What does the future hold for DB master trusts?

Consolidation of DB pension schemes is a subject that’s been gaining momentum and increasing amounts of attention recently.

While moving to a consolidator vehicle won’t help you overcome all the challenges associated with your DB scheme, nor should it be ignored. In our view its role will only grow. 

Now is the time for consolidation

The prevailing view is that the DB market, particularly for smaller schemes, could function better if the inter-related factors of scale, poor governance and high costs are tackled. As such, consolidation was a key plank in the Department for Work and Pensions (DWP) White Paper, a core recommendation from the Pensions and Lifetime Savings Association (PLSA) DB taskforce, and The Pensions Regulator repeatedly highlights the regulatory challenges posed by DB schemes.

The top three drivers for DB pension scheme consolidation are:

  1. Reducing the cost of running DB schemes
  2. Improving security of member benefits
  3. Managing risks more effectively

The role of the DB master trust

The industry has responded creatively to offer a wide choice of options for DB schemes, with more to come in the future. A DB master trust is one of the options available to employers, particularly those with smaller DB schemes, to help reduce costs and ultimately improve the security of peoples’ pensions.

In a DB master trust, employers transfer their scheme’s assets and liabilities into their own ‘section’ of a larger DB trust, and then close down their old scheme. This consolidates the running of the scheme into the DB master trust alongside other former schemes and employers. 

Benefits of DB master trusts

What does the future hold?

DB master trusts have been around for many years, and with consolidation and cost savings moving up the agenda, we believe now is their time to really take off.

Recent analysis from Hymans Robertson suggests 14% of companies in the FTSE350 have at least one scheme which could benefit from moving to a master trust arrangement, and predict that around 1 million members will be consolidated into a DB master trust by 2042[1].

However, master trusts won’t be right for all schemes. Consolidation should be considered in the context of your long term strategy to identify the role it could play in your specific scheme’s future, and understand which option may lead to the best outcomes for your particular scheme.

For more information on DB master trusts and how Citrus could help your scheme, please contact us

[1] Source: Hymans Robertson