High-profile examples of pooled pension schemes in the public sector have triggered debate about whether similar arrangements could also be used more frequently in the private sector.
Last month, London Councils announced it was looking into plans to create a pooled pension fund to reduce administration costs and divert up to £2.25 billion to infrastructure projects in the capital.
The resurgence of interest in multi-employer pension schemes, along with master-trust arrangements, which can be used by multiple employers if required, is also partly due to auto-enrolment and the other forthcoming pension reforms, which will begin taking effect in October this year.
The prospect of a potentially significant increase in pension scheme take-up, along with the introduction of compulsory minimum contributions, make the efficiency savings and the robust governance structure inherent in trust-based defined contribution (DC) schemes, as available under multi-employer and master-trust arrangements, appealing to employers.
Master-trust arrangements combine elements of both trust-based and contract-based schemes. They have a professional trustee overseeing the scheme, monitoring matters such as investment funds, but for employees, master trusts have the look and feel of a contract-based pension plan.
Stephen Nichols, chief executive at The Pensions Trust, which provides multi-employer defined benefit (DB) and DC schemes, says: “The national employment savings trust (Nest), [and schemes from providers] Now Pensions and The People’s Pension are all based on the master-trust principle, which offers huge advantages over the DC equivalent in the contract-based world.”
Jamie Fiveash, director of customer solutions at B&CE, provider of The People’s Pension, said the population that was due to be auto-enrolled under the reforms could be managed more cost-efficiently using a trust-based DC scheme rather than contract-based options such as a group personal pension (GPP) or stakeholder plan. One reason is the lower, more flexible regulatory costs of occupational trust-based plans.
Nichols said schemes that join multi-employer plans available from The Pensions Trust can expect to save 40% on ongoing servicing costs. “If a pension scheme joined us today, there is probably very little additional legal work that we would need to do because we are already getting all of that advice already,” he said. “Because we operate as one occupational pension scheme, it will apply to all the schemes. We don’t have to get 40 sets of advice.”
But setting up a multi-employer scheme in the private sector can be challenging. Nichols added: “A for-profit organisation would need to get together a number of like-minded organisations to set up a master-trust arrangement for their sector. This is difficult because they all compete against each other, and although a trust will give better governance and help them save money, it does not necessarily give them a competitive advantage.”
Also, Mario Lopez, senior policy adviser, labour market and pensions policy at the Confederation of British Industry, said low trade union representation in the UK’s private sector made it difficult to set up industry-wide pension schemes. “Collective bargaining and trade union representation in the private sector is very low,” he said. “In Holland, for example, an employer can have an industry-wide scheme that covers manufacturing because workers are on a similar wage and have the same employee rights due to collective bargaining.”
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