Master trust schemes on a growth trajectory in Ireland

Penny Gray

There’s a lot of talk about pensions lately, especially with the launch of the government’s new auto-enrolment scheme. But there’s another big shift happening in Irish pensions that affects employees who already have a pension provided through their employment. Many of these employees have been moved from a standalone pension scheme set up by their employer into a “master trust”.

“A master trust is a pension scheme for multiple employers and these employers do not have to be connected in any way,” explained Grace Guy, head of supervision and enforcement at the Pensions Authority, the regulator of Irish pension schemes.

“An employer will decide what pension benefits it wishes to provide for its employees, which typically involves both the employer and employee paying a fixed percentage of the employee’s salary. However, instead of the employer setting up its own pension scheme and appointing a set of trustees to administer and manage the pension scheme, the employer may decide to join a master trust.”

The Pensions Authority has seen a significant increase in the number of master trusts operating in Ireland. There are currently 17 master trusts in the Irish market, up from eight at the start of 2021. At the end of March 2024, these master trusts had approximately €23 billion in assets under management, with 23,000 employers and 460,000 members. These numbers are expected to continue to grow.

Commenting on the growth in the master trust sector, Guy said: “Significant changes were made to Irish pensions legislation in 2021 and these new rules have prompted many employers to move to master trusts for future pension provision.

“The intended outcomes of the new rules are good value for money, appropriate investment and risk management and improved member communications. These new rules are a good thing for members, but they have increased the time and resources needed to run a scheme. As a result, employers have had to consider whether or not it is cost-effective to run their own pension scheme. Many have made the decision to move to a master trust.

“Master trusts are generally established by a commercial entity like an insurance company or a pensions firm who we call the ‘founder’,” Guy continued. “The founder appoints a professional board of trustees to manage the master trust.

“Master trusts can benefit from economies of scale that come from there being multiple employers under one trust. Centralised governance and administration as well as innovation around investments, technology and communications are also some of the potential advantages of master trusts over a single employer pension scheme. It is the trustees of the master trust who are legally responsible for its management and administration, and it is the trustees whom the Pensions Authority supervises to ensure the master trust is properly run.

“At the Pensions Authority, we want to make sure that master trusts are fit for purpose and operating effectively to deliver improved employee/member outcomes. The trustees of master trusts must have a thorough understanding of the risks the master trust is exposed to and implement an effective risk management function. Issues like sustainable capitalisation, value for money, appropriate investment and charges transparency are all matters to which the Pensions Authority will pay particular attention.

“We also want to make sure that conflicts of interest in a master trust are properly managed. There is the potential for conflicts of interest in many master trusts where trustee boards are required to consult with or seek approval from the founder in relation to the appointment and removal of service providers, and typically the founder provides some, if not all, services to the master trust.

“We expect the trustees to make decisions in relation to the removal or appointment of service providers in an objective manner and trustees should not be inhibited in this regard by their relationship with the founder.”

There are now 17 master trusts in the Irish market, up from eight at the start of 2021

Another area that the trustees of master trusts need to actively manage is communication. “A master trust faces particular communication challenges given its potential size, the number of members in unconnected workplaces, and the different role of the employer in comparison with a traditional scheme,” Guy said.

“We expect master trusts to have a written policy on engagement which must include engagement with employers as well as members. The policy should set out in detail the format and frequency of the engagement and must also contain a commitment to actively engage with members and employers. This might include for example holding an annual meeting to which members and adhering employers are invited to attend.”

For employers considering a master trust, Guy stressed the importance of shopping around and choosing a well-run trust that offers value for money for their employees.

“Be sure to ask some pertinent questions, such as: Does the master trust have enough capital to protect member interests? Are the charges clear and well explained not just to you, but also to your employees? Are the investment choices appropriate and how have they performed against their benchmarks? Are the trustees well qualified to carry out the responsibilities of the role? Do the trustees meet the requirements of the Pensions Act, 1990, as amended, and the Pensions Authority’s Code of Practice for trustees?”

Retirement savings are a significant financial commitment, and workers are entitled to high standards in the management of their savings, whether in a single employer scheme or a master trust. “The Pensions Authority will be keeping a close eye on the master trust sector considering its ongoing expansion,” finished Guy. “Because of the expected importance of these schemes for pensions provision, master trusts will be subject to close supervision by the Pensions Authority.”