RIP Own Trust DC

Mike Spink

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On Wednesday evening I attended one of the NAPF’s PensionsConnection events focussing on the management of DC schemes. We were served up the usual treat of insightful speakers and good audience participation. And impeccable timing too – both the DWP Command Paper (government response to ‘Better Workplace Pensions: Putting Savers’ Interests First’) and the FCA’s final rules for Independent Governance Committees were issued earlier in the day.

The meeting focussed upon one particular aspect of the new Trust Based DC scheme Regulations which are due to come into force in two months time: the requirement that DC trustees consider the degree to which their scheme demonstrates and delivers ‘value for money’. We heard about the many difficulties involved in such an assessment – not least the fact that a large slice of the assessment will involve subjective analysis. It was noted that DWP and TPR have left the actual mechanics of this to the industry to solve. Trustees’ advisers should have a central role to play in providing relative scheme assessments to help provide various benchmarks. But in summary, all agreed that this one area alone was destined to involve significant time and expense.

As the debate continued, it only served to reinforce in my mind the belief that all but the very largest Own Trust DC schemes will soon cease to exist. The road to extinction began with the Code of Practice / Regulatory Guidance issued in November 2013 and continued with the further work required to consider internal scheme policy ahead of the new flexibilities being introduced in April. The perfect storm has now been completed with new legal requirements around governance also hitting in April.

If nothing else, this week’s meeting and the production of the Command Paper confirmed that the end has come. The prospect of thousands of Own Trust DC schemes poring over the new Regulations, each spending thousands of pounds employing advisers to carry out this new work, is simply ridiculous. Yes – TPR used the launch of the Code to ask that trustees themselves consider whether their scheme members might be better off as members under an alternative DC vehicle. But surely the sponsoring employers will now show their hand and take action.

Each of these employers is generally trying to do the same thing: provide their employees with the means to accrue a DC pot which will go some way to helping them realise their retirement ambitions. This can be achieved far more productively and at much less cost by ditching the Own Trust scheme and sponsoring an alternative arrangement. If the employer feels greater affinity to the trust rather than contract model, then there’s a clear ‘win win’: save money, save time and allow employees to benefit from much improved governance – but with someone else taking the strain. It’s called Master Trust and is this week sporting a very broad smile.