Mastering the master trust

Master trusts are a cost-efficient, flexible and well-governed way to provide workplace pensions. Paul Bucksey, head of UK DC Business Development and Client Relations at BlackRock, explores how pension schemes can best take advantage of this new, more effective approach

Universal provision of workplace pensions is one of the main focuses of government pension policy.  With auto-enrolment, it has been able to concentrate the minds of more and more employers on pensions. Employers need to make sure they provide pensions for their staff which are appropriate for their current as well as future needs and are also transparent and well-funded.

That everyone has adequate savings for their pension is essential. But does that mean that employers have to undertake all the pension plan management responsibilities themselves, considering it is not their core competency? For more and more employers and pensions experts the answer is “no”.

This is why a growing number of medium to large companies are looking to master trusts to provide cost-effective, well-governed pension plans. A master trust is a pooled pension scheme whereby multiple employers belong to a pension arrangement managed by a single trustee under a single trust, with each employer’s membership ring-fenced from all other participating employers.

Britain has a large number of small pension schemes. According to figures from the National Association of Pension Funds (NAPF), in this country the average scheme has 2,600 members compared with 10,500 in the Netherlands and 27,000 in Australia.

As NAPF chief executive Joanne Segars has pointed out, this makes UK defined contribution (DC) pension plans more costly to run as well as being less able to optimise investments. In fact, schemes with a membership of more than 50,000 have costs of around £15 to £20 per member while, for those with fewer than 1,000 members, the costs are around ten times more, according to the May 2009 Capita Hartshead Pension Scheme Administration Survey.

BlackRock’s Master Trust bundles together scheme administration, an investment platform, member engagement tools and trustee services

However, the advantages offered by the BlackRock Master Trust are not only attractive to  medium-size employers, they are also proving hugely attractive to larger employers as they provide access to:

  • Professionally qualified trustees
  • Effective DC governance framework, wholly separate from BlackRock
  • Off-the-shelf default and self-select investment options, with the option to tailor fund options from the full BlackRock DC range
  • High-quality, engaging and multichannel  member communications
  •  DC member service centre providing telephone and online support to members, and delivering enhanced services comparable with the best offered to end-consumers in any industry.

As a leader in investment management, risk management and advisory services for institutional and retail clients worldwide, BlackRock’s credentials for running a master trust are impeccable and, since launch last year, the BlackRock Master Trust has generated great interest among companies from all sectors.

With our well-regarded, trust-based DC capability, BlackRock’s Master Trust bundles together scheme administration, an investment platform, member engagement tools and trustee services.

Our considerable investment experience – with more than £2.5 trillion of assets under management – means that we can provide clients access to a greater range of DC plan management capabilities than most other pension solution providers.

Despite BlackRock’s size, we are determined to offer the flexibility that employers need. Using the BlackRock Master Trust, employers are able to offer a pre-selected range of funds, including a choice of defaults, or they can work with their investment consultant to customise the default and the investment range.

Today, more than ever, good DC governance is at the top of the agenda for employers and pension consultants, and so BlackRock has been careful to ensure our Master Trust is properly governed.

However, just as it drives down costs, it enables employers to provide DC benefits under the more stringent governance model of a trust without the associated long-term overheads of having to appoint trustees or meet the regulatory and audit costs usually associated with operating trust-based schemes.

Governance is undertaken by an independent corporate trustee, wholly separate from BlackRock. Following an extensive selection process, Independent Trustee Services (ITS) has been appointed as the corporate trustee to the BlackRock Master Trust. With more than 20 years in the business, ITS is one of the longest-established firms of independent trustees.

Pensions are essential, but they’re not always uppermost in the minds of many employees and, with constant changes in the regulations, they can also be confusing. Paying for this week’s groceries, a holiday or saving for a rainy day are seen as a higher priority for most people.

Because of this, we have put effective communications to members at the heart of our Master Trust, and ensured that information for employers and employees is in plain English and easily available through a multichannel platform.

As the recent BlackRock Investor Horizons Survey findings show, 29 per cent would save more for retirement if they knew how much to save now and BlackRock’s Target Plan can assist them. Available as part of the BlackRock Master Trust, Target Plan is an easy-to-use, fully integrated online pension planning tool designed to help employees assess their saving requirements, manage changes to retirement age, contribution level and choice of investment.

From talking to employers, we also know that they want to have easy access to the back-office systems which run their pensions. The BlackRock Master Trust allows employers to administer easily their scheme online, and can also access and segment their workforce for auto-enrolment.

Auto-enrolment is changing the pensions landscape considerably. Even with this change in the law, encouraging employees to invest for their retirement in the current economic climate can be particularly challenging.

But as a growing number of employers are realising, the BlackRock Master Trust can provide much-needed help to make it possible for them to provide the tools and information required that could help employees achieve the retirement outcomes they require.

FUTURE SHOCK

32% of people in the UK aren’t planning or saving for retirement

25% expect to spend 20 years or more in retirement

£27k expected average annual income, compared to £13k current actual yearly income

44% are not confident of achieving their desired level of retirement income

Source: BlackRock Investor Horizons Survey, November 2012, EMEA

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For further information on the BlackRock Master Trust or any other DC pension queries, please contact Paul Bucksey

paul.bucksey@blackrock.com

+44 (0)20 7743 4680