The Pensions Regulator (TPR) has already published detailed analysis showing that the costs of running a small DB scheme are disproportionately high¹. These costs are expected to increase as small and medium-sized schemes navigate new regulations and TPR guidance primarily designed around larger schemes. Hiring industry professionals to improve governance is likely to add further expense (to find out which professional services are essential for today’s governance models, see our previous article).

Improving governance without raising costs

We believe small DB schemes shouldn’t have to choose between effective governance models and manageable running costs, because master trusts with professional service providers can help strengthen governance without increasing expenses.

Schemes can access significant economies of scale through a DB master trust. These savings are not available when schemes appoint standalone counterparts such as independent trustees, actuaries, and administrators.

A master trust has greater potential purchasing power than an individual small or medium-sized scheme. It can also deliver synergies by avoiding duplication of effort between sections. These synergies and economies of scale are passed on directly to the end-client in the form of low fixed running costs.

How much could you save?

What kind of cost reduction can schemes expect? The answer varies, depending on the scheme's current governance model and the master trust's governance model. Typically, we would expect a 30% reduction in running expenses.

Further additional savings can be achieved by reducing the cost of funding the scheme through efficient integration of the funding and investment strategy (you can read more about this in a separate article).

A reduction in running costs shouldn’t mean a reduction in service levels. In fact, for some small schemes, entry into a master trust can help improve service and cut costs.

How do we deliver savings?

Under the standard DB scheme operating model with a quarterly meeting schedule, 50 different DB schemes would typically result in 200 meetings per year. The abrdn pensions master trust has a common trustee and common advisers. As a result, we can cover 50 sections per meeting.

How? The same industry themes are common across sections. All sections invest in the same equity and gilt market and use the same building blocks to implement differing investment strategies.

These are just a few examples of how a master trust can be super-efficient. If you would like a detailed, tailored quote, please do contact us at DBmastertrust@abrdn.com.

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