Swimming with sharks – a Master Trust Story

Chris Roberts

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It is pretty much impossible to log onto my Twitter account at the moment without seeing a blog or commentary regarding master trust saturation and the need for more regulation.  Whilst immediately wishing to blame others for the deluge on my twitter feed, these articles resonate with me and are providing useful industry insight.

When reflecting on this point I looked back on a previous blog and noted some wise market commentators did foresee this:


(Obviously, I only hark back to the blogs where I was correct and not those that fall wide of the mark, but that is my artistic license!)

It is now widely reported that there are between 70 and 100 master trusts operating within the UK.  Indeed, I expect it may now be higher than that.  This number will continue to grow until the end of 2018, when the auto enrolment window will have basically closed.  The growth is fairly staggering, when I was looking to recommend a master trust in 2011, I found about two or three choices.  Fast forward four years, and there is more than I can assess.

If you want to understand why, consider a statement I heard at the recent Employee Benefits UK Conference:

“NEST expect to be writing business every 10 minutes during January 2016 and every 10 seconds during the peak of auto enrolment”

The words gold mine, gravy train and car crash all come to my head simultaneously.  The problem with opportunities is they create opportunists.  Opportunists can vary from the very brilliant who seize opportunities and innovate, to those who are looking to make a “quick buck”.

The key to master trusts is scale.  They need huge volumes to become sustainable as the charge cap, and requirements for governance really do squeeze the margins.  It is unlikely that all these vehicles will reach the critical mass required to meet their sustainability requirements.  When they don’t, what happens next?  They will invariably wind up, and who pays for this process?  Most likely, the members.

Whilst market consolidation is likely, with the larger players who have invested significantly (NOW, TPP etc.) likely to buy up smaller schemes,  there can be no guarantee that this will be seamless and without cost.  Therefore, employers may find themselves selecting a new vehicle and going back through the process in a short timeframe.

So what should employers do?  The easy answer is stick with NEST, as it least they know it is not going anywhere.  However, is that really the best answer?  NEST is underpinned by legislation which means:

  • It is not easy to amend
  • You cannot shape the Scheme to meet your needs
  • You are at the mercy of future enforced changes

When looking at the short term measures such as restrictions on transfers and capped contributions, I would not be hopeful that NEST would be fit for purpose for all.  If you consider a dynamic small company that is looking to expand and develop, I cannot see NEST developing with them.  NEST may be best for some companies but definitely not all.

Employers should look at their needs, weigh up their options and carry out due diligence on their selected Scheme.  Look at the long term model, ask the difficult questions.  Those Schemes that do not answer, or don’t feel the need to have engaging employer Q&A’s have probably answered the questions with their silence.

The Master Trust Assurance framework may in the long term provide security but in the short term there are not enough big players signing up.  I would like to see five to 10 approved master trusts to allow employers to have an easier choice than navigating the current shark pool, but with enough diversity to give good options for all.

NEST is the default, but in my view any decision made should be made for a selection of thought out logical reasons.  Simply defaulting out of apathy or ease is not really protecting your employees and is not a good reflection on a business.