Executive summary

The recent raft of additional governance requirements and their associated compliance costs, not to mention the remediation powers within the Pension Regulator’s armoury, mean that many companies are reconsidering how best to deliver their legacy defined benefit (DB) pension promises.

Cue the re-emergence of the DB master trust as an optimal solution for many sponsors. A DB pension master trust - like the abrdn pensions master trust - is a multi-employer pension scheme for unconnected employers.

DB master trusts pass on the benefits from the economies of scale they bring to all stakeholders of DB pension schemes. These include cost savings, governance improvements and an opportunity to increase member benefit security (i.e. through an acceleration of de-risking plans).

The abrdn pensions master trust

The abrdn pensions master trust is a multi-employer DB pension scheme primarily aimed at small-to-medium-sized pension schemes.

The link to the employer is not severed and member benefits remain unchanged. As you can see in the graphic below, assets and liabilities remain segregated, enabling schemes to pool together to benefit from economies of scale, while avoiding cross-subsidies with other schemes. 

We believe the abrdn pensions master trust is the first mainstream UK DB master trust to be launched by an asset manager in conjunction with an independent pensions consultancy.

So, what are the challenges facing DB schemes, and how can the abrdn pensions master trust help?

Robust governance and trustee succession solution

New regulations and guidance are raising the bar on pension scheme governance. Some of these have already been adopted by large schemes with significant resources. However, equal application to their smaller, less well-resourced counterparts could prove disproportionate and burdensome.

As the governance burden increases and the number of scheme members employed by the company decreases, it can be difficult to find trustees who are willing to do the job, let alone able to meet the onerous requirements on trustees.

Within the abrdn pensions master trust your scheme will be managed by professional trustees and other service professionals, taking away the day-to-day hassle of managing this obligation.

This would remove the governance burden entirely from the current trustees and provide reassurance to the company that the scheme is being run in a professional manner and is set up to target better outcomes for members. You can find out more about the benefits of a ‘one-stop-shop’ approach to professional service provision in our recent article.

Outsourced investment management

For many small and medium-sized DB pension schemes, their investment strategy is implemented through a combination of pooled funds. Once a strategy has been implemented, trustees typically review performance and positions on a regular basis during trustee meetings.

However market conditions during 2022, particularly the period following the 23rd September 'mini-budget', illustrated the problems which can arise without a nimble investment governance framework.

The abrdn pensions master trust gives your scheme access to a diversified range of assets in private and public markets with ESG considerations embedded throughout. We use a holistic approach to portfolio management.

With a common trustee, investment adviser and asset manager, together with well-defined delegations, our efficient investment governance model gives us the ability to act quickly when decisions are required (be that in de-risking decisions or cashflow management), helping your scheme navigate through volatile markets and meet your long term objectives. You can read more about the benefits of a common investment manager and advisers across sections in our recent article.

Control cash funding cost through efficient investment

Most schemes are closed to new members and future accrual. The new funding regime means all schemes will need to set a long-term funding objective and requires technical provisions consistent with a journey plan for reaching that objective.

A common concern for employers in these circumstances is loss of control – both in risk and cost terms. How does the employer ensure that the trustees and service providers are effective in achieving the endgame without spiralling costs? How can the employer and trustees set a long-term strategy today that will not be revisited in three years’ time?

The expected return from your pension scheme’s investments can materially impact the cash cost to the employer of funding the benefit provision. Implementing an improved investment strategy can reduce funding costs and give employers more control over the timing of payments that may be required to close funding gaps.

The abrdn pensions master trust offers access to a range of investment solutions that are often beyond the reach of small and medium-sized schemes. Coupled with a funding approach that reflects these underlying investments and is expected to align with the new funding code, it is possible to improve control of cash funding costs.

For further reading around this subject, see our article, ‘Could a DB master trust help you fund your scheme more efficiently?’

Reduced running expenses

The Pensions Regulator[1] has already published detailed analysis showing that the costs of running small DB schemes are disproportionately high. These costs are only expected to increase as small and medium sized schemes have to deal with new regulations and tPR guidance that is primarily designed around larger schemes. This also has the potential to take up a disproportionate amount of management time.

Efficient path to buyout 

Demand exceeds supply in the buyout market. Small schemes often struggle to get adequate attention from providers and may therefore pay a higher price than the larger schemes.

Thanks to our size and our relationships with insurers, we can offer sections a smoother, more competitive buyout process. This can reasonably be expected to deliver accelerated risk transfer at a lower cost.

Moreover, all sections will receive granular information in relation to the cost of buyout relative to their current assets, thus reducing the risk of overfunding.

Enhanced member experience

It is crucial (for financial planning purposes) that members understand their pension - both before and after retirement. For many people, their defined benefit pension will be their largest source of income in retirement. A poor member experience can lead to frustration and bad decision-making.

The abrdn pensions master trust provides its members with an award-winning pension administration service from XPS, including online servicing. In addition, free financial education from abrdn financial planning is offered to all members.

Read our article to find out more about the potential benefits of a DB master trust in terms of members’ financial wellbeing.  

Contact us

If you would like to find out more, to help decide whether transferring your defined benefit pension scheme to a master trust could help your business, please contact one of our pension solutions specialists at DBmastertrust@abrdn.com.

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