The rise of the master trust

Once group personal pensions were the product of choice for companies setting up a defined contribution (DC)scheme for their staff. But increasingly, the master trust is gaining ground, as IFA firm the Lighthouse Group demonstrated last month by launching its own master trust pension scheme. So what is a master trust and how complicated is it to set up?


A master trust is a multi-employer, trust-based scheme that differs only from a normal trust-based DC scheme in that it is open to the employees of many employers, the staff of which are all treated equally and follow the same rules.

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Often a firm of professional trustees is appointed as sole trustee of the scheme, who will then appoint investment advisers and administrators.

As with any trust, a trust deed is required that sets out the rules of the scheme, including granting authority to the trustees. In all other respects it is very similar to any other group pension scheme.

As the battle for corporate pension arrangements heats up, master trusts are being considered by IFAs as an alternative to group personal pensions (GPP) and other low-cost insurance-based pensions. With GPP providers keen to target employers directly, and commissions on contributions to auto-enrolment pensions now banned, IFAs are looking for more attractive solutions in order to move their business forward as auto-enrolment picks up pace.

Master trusts have been the structure of choice for auto-enrolment pensions ever since Nest, the government-backed scheme, was launched. Itself a master trust governed by a board of independent trustees, the model has been used by other mass market providers NOW Pensions and The People’s Pension.

More recently, in anticipation of the auto-enrolment staging of smaller companies over the coming years, pension administrators and intermediaries have started to dip their toes in the water, looking to expand their client base or simply provide qualifying schemes for their existing clients. Firms such as Carey Pensions and Mercer have also thrown their hats into the ring, announcing master trusts.

Simple or complex?

One of the advantages of the master trust is that, while there are a number of moving parts to consider, the barrier to entry in terms of initial costs to the provider is relatively modest. The legal costs of drafting a master trust deed are not particularly onerous, for instance. The difficulties lie in setting up all the interconnected working relationships: the pensions administration, investment administration (for instance, using a platform), fund ranges, trustees and advisers.

Even if the host provider fulfils one or more of these functions, it is likely that partnerships will need to be formed. As well as increasing the potential for complexity and errors, this multifaceted approach can also add layers of cost to the scheme member.

Cost is an issue because the government is expected to place a total cap on charges in default funds, set to be somewhere between 0.75 and 1 per cent (this has been delayed due to alleged disputes between the DWP and the Treasury over the right figure amid fears that pushing the cap too low will make the market uncompetitive, according to a recent report in the Financial Times.)