Following the beginning of the Master Trust authorisation regime, governance in the Master Trust space has been focused on the key aspects of The Pension Regulator’s (TPR) Code of Practice 15 (COP15). As the world moves on, what do the gestures toward Master Trust consolidation and improving value for members mean by way of opportunity to ensure world-class governance in the DC arrangements that remain?

There are many examples of moves towards Master Trust consolidation already in the market. Whilst these are typically purchases of one funder by another, commercially it makes sense for separate Master Trusts to eventually combine, bringing with it a new governance challenge for the busy world of Master Trusts. The current COP15 is not designed to cover consolidation. So many of these Master Trusts will be forging new paths (if and when they do so). Although, there is now an experienced path to ensure Master Trust Authorisation remains on an ongoing basis. Consolidation will involve implementing continuity strategies for the Master Trust and will involve revision to Business Plans. The importance of “exploring” consolidation becomes key to ensure that there isn’t an inadvertent triggering event, resulting in the need to follow the very tight continuity strategy timescales prescribed in legislation. As with many large projects, the key to success in governing a consolidation exercise is planning! Engaging with all stakeholders is important and is often best facilitated by establishing a merger working party with representation from all key stakeholders.

What do we need to think about?

Do the rules allow us to do this? What are the steps we need to take to legally formalise this? What documents need to be signed? Can we do two transfers? In effect, there is a review of the future target operating model. All these questions (and more!) need to be answered as part of the legal and administration approach. Ensuring you can do what you want to do is crucial, and planning the timing of key steps is vital.

Understandably, merging investment strategies is often the first consideration when contemplating consolidation. Consolidation should, after all, be about improving member outcomes. Master Trusts, however, do not need to merge investment strategies as a first step and this often acts as unnecessary noise when considering consolidation. It may be that doing this at the same time is key for some but not others. Careful consideration should be given to the order in which items are done to prevent confusion from too many moving parts.

The Governance Challenge

Challenge here brings an invaluable opportunity to improve member outcomes for millions of savers. But at the same time, this must be balanced against strong governance and robust implementation.

If you would like to discuss anything Alison has covered in this blog, please get in touch. 

This article also features in PMI Pensions Aspect magazine.