Scottish WidowsMar 7 2018

Scottish Widows has its eyes on the master trust prize

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Scottish Widows has its eyes on the master trust prize

Under the heading “maximising the group’s capabilities” it said the group would be “increasing Financial Planning and Retirement (FP&R) open book assets by more than £50bn by 2020 with more than 1m new pension customers”.

This did not mean, as the bank pointed out, that it would be building a financial planning workforce, only six years after pulling out of mass market advice.

Instead what it means is that it will continue to invest in its intermediary distribution network and it plans to increase its pension book assets by 30 per cent, to make it the biggest provider of workplace savings in the UK.

What it has identified is that workplace savings are a big growth sector, especially in the defined contribution (DC) arena; the exciting place to be is as a provider of group personal pensions (GPP) or master trust schemes, as employers looking to de-risk their DC trust-based schemes into an outsourced provider, saving on costs and time and governance burdens.

Jackie Leiper, distribution director of Scottish Widows (a subsidiary of Lloyds Banking Group), said: “We’ve seen a high level of growth in workplace pensions. A lot of this comes from existing employers; this isn’t auto-enrolment, this is employers restructuring their arrangements. We are seeing growth in areas where employers are moving out of trust-based arrangements to master trusts or GPP arrangements.

“It’s a fairly bouyant market and we’re seeing a lot of enquiries. It’s coming from employers to improve their proposition.”

Many will be familiar with de-risking of defined benefit (DB) schemes, as employers look to offload their responsibilities to a third party; the new trend is for those with burdensome DC schemes, where the employers have had to bear more responsibility for looking after these schemes following recent government and regulatory attention. Moving over to a GPP or master trust allows for greater control by the employee.

Key points

  • Last month Lloyds announced it wanted to be number one in workplace pensions
  • A big trend the provider is picking up on is the move out of DC arrangements to GPP or master trust
  • Scottish Widows is a big player in GPP and will soon have a master trust

Andrew Pennie, marketing director, financial services, of Intelligent Pensions, said: “The traditional trust-based scheme puts more responsibility on the employer, with trustees and having the infrastructure to support it, but GPP and master trust arrangements allow the employer to offload that. 

“The only downside is that you’re not able to tailor everything to your range of employees, you’re having to fulfil a whole range of demands of people with different needs.

“We think this is an unintended consequence of pension freedoms; there’s so much more risk in pensions, because people can access them early, you’ve got all the options: drawdown, cashing out, annuities. Some companies are saying: ‘It’s too much for us, we’re going to offload that risk and give you another provider.’”

To some this is another form of ‘de-risking’. The more familiar territory is employers with DB schemes de-risking themselves from the pension assets liabilities, whereas now the big growth area is the move out of DC trust-based schemes.

Mr Pennie said: “With pension freedoms and increasing governance and regulation on workplace pensions, for some employers it’s too much hard work. They are removing the employer and trustee risk to outsourced solutions, whether that be GPP or master trust.”

GPP schemes have become well established in the pension arena and work on the principle of being a bundle of individual pension schemes accessed through the employer, whereas master trusts, a newer arrival, proliferated following the advent of automatic enrolment. 

They work on the basis of pooling a huge number of different employees, and using economies of scale to reduce costs and increase fund performance. There have, however, been concerns about the large number of master trust that have been set up in the past few years, and the lax regulatory controls, as well as whether they were large enough to deal with failure.

Consumer protection

Ms Leiper said, however, that since the arrival of tighter regulation over master trusts – which include higher barriers to entry for those wanting to set up a trust, with five tests for authorisation – there will have to be stronger protection for consumers in the event of a wind down, and higher fees for authorisation.

Ms Leiper said: “The improvement in these propositions, now that the master trust legislation has been tightened up, gives confidence to the employer. They think it’s now as good as what they had before. [The advantage is that] you are now able to leverage the scale of the master trust and shared governance.

“Employers will still have the same governance but they don’t have the liability.”

Scottish Widows does not have a master trust, but will acquire one with the Zurich acquisition; it does have a big presence in the GPP world, and is seen as one of the top UK providers for these schemes. 

Positive journey

Glynn Jones, group development director of LEBC, said: “I think Scottish Widows is on a very positive journey and it is a great pension provider. Larger schemes or medium-sized schemes will go towards group personal pensions and individuals will want to be in a GPP for a longer time than in a master trust.

“A master trust is set up with trustees who look after the interests of all the members. Part of that is they will decide the investment strategy, and they look after all the administration. A GPP is just individual pots – a group of personal pensions; an employer puts money in each individual personal pension.” It is easier to move one’s pension from a GPP than if one is invested in a master trust, if one leaves one’s employer.

He added: “I think people don’t want to have to keep moving money if they have a personal pension. Scottish Widows has a strong reputation; they’re one of the main providers of GPP, along with Aviva, Standard Life and Royal London.”

As part of its strategic update, Scottish Widows announced it would be investing in the financial planning side of its business. This means, according to Ms Leiper, it will be investing in its relationships with its intermediary networks, by making the process of doing business easier.

She said: “What we are doing is we are effectively digitising the customers’ journey. For advisers this has been about improving the way in which we join up our systems with their systems: how can we provide better case management?”

This involves creating an employer and an adviser hub which gives access to management information about the schemes and can produce reports, and gives access to help employers run the governance side.

Advisers being part of the picture, for many, the big growth area is workplace pensions, and Scottish Widows sees it as a way of positioning itself here for many years to come.

Melanie Tringham is features editor of Financial Adviser