The provider will operate the master trust in tandem with XPS, which will provide actuarial and investment consulting, administrative, secretarial and covenant support.
The project will get off the ground after years of regulatory movement that has paved the way for DB consolidation, with the authorisation of the Clara consolidator vehicle and the pending approval of The Pension SuperFund having dominated headlines.
Abrdn will target small and medium-sized DB schemes. It pointed to a potential market made up of more than 4,000 schemes in this bracket, which have aggregated assets of almost £200bn.
Abrdn claimed that it was the first such master trust to be built as part of a partnership between a pensions consultancy and an asset manager.
DB regulations are not there yet
The venture is currently in a tender process for a professional trustee, with an announcement expected in the next couple of months.
It is the latest addition to a growing DB master trust market that also includes Punter Southall-owned Stoneport, Mercer and TPT.
Given Abrdn’s participation in helping to establish the regime for DB master trusts, its own arrival into the market may not come as a surprise to some.
The provider was part of the working group for a DB master trust self-certification regime that was launched towards the end of last year alongside the Department for Work and Pensions and a host of other industry bodies, which included the Pensions Management Institute and the Pensions and Lifetime Savings Association.
This concept provides master trusts with a standardised template, offering information on their structure and how they operate. The templates are hosted by the PLSA.
DB master trusts are marketed as a way of helping schemes achieve cost savings, improve their governance and “increase member benefit security through a one-stop-shop solution”, per Abrdn’s announcement.
Tom Froggett, senior consultant at XPS, pointed to parallels in the defined contribution market.
Consolidation had yet to significantly take off in this space until new regulations were brought in, such as “direct regulations” towards DC master trusts, like the authorised list of master trusts introduced by the Pensions Regulator.
“Indirect regulation” around areas like governance, aimed at raising standards to the extent that schemes either had to improve or consolidate with larger providers, also pushed forward this trend.
“The regulation isn’t there yet in the DB space, but I think there’s certainly clear potential for it,” he said.
Indirect regulation in the last couple of years, like new requirements over effective governance systems and trustees’ own risk assessments, along with the new funding consultation code due later this year, may help to focus employers’ and trustees’ minds.
“The big question is whether there’s any direct regulation around DB master trust vehicles [and] other consolidators,” he added, suggesting that the authorisation of Clara would “create a bit of a wave in the consolidation market”.
Small and mid-sized schemes will be under pressure to consider
Abrdn’s DB master trust will apply fees according to entrants’ asset sizes using basis points, which it believes differentiates it on the way it charges clients.
In 2020, 48 per cent of PLSA members voted that consolidation would be the most significant trend in the pensions industry over the subsequent five years.
Mark Foster, global head of pension solutions at Abrdn, observed that the arrival of superfunds had “taken a lot of the headlines, a lot of the limelight”.
Abrdn’s scheme has been under consideration for over 12 months. Progress in the regulatory backdrop, with milestones such as the approval of Clara helping to illustrate the wider benefits of consolidation, has contributed to the Abrdn master trust’s imminent arrival.
“Superfunds clearly have a particular type of scheme that [they’re] looking at,” Foster said, arguing that master trusts would support “a broader array of pension schemes”.
The new DB funding code, which is expected no sooner than the late summer, will also come into play. A focus on improving governance systems is anticipated.
“Smaller and medium-sized schemes are going to come under increasing regulatory pressure to be looking at these types of options,” Foster predicted.
Alex Janiaud is deputy editor at FTAdviser's sister publication Pensions Expert
