The 2018 Pensions Authority consultation paper covers a wide range of areas concerning master trusts. A master trust is a multi-employer defined contribution pension scheme which is governed by a single trustee board. We examine some issues which are of particular note.
In order to ensure that master trusts are adequately capitalised, the Pensions Authority has proposed that the trustee be structured as a designated activity company (DAC). The sole object of this DAC will be the carrying on the business of being a trustee of one named master trust. This means a new and separate DAC trustee will be required for each master trust.
In addition to this, the consultation proposes that the DAC would have a minimum of two directors, with each director to meet the requirements for either a qualified trustee or experienced trust.
While the minimum thresholds have been welcomed by the industry as a worthy safeguard for master trusts, there have been some concerns flagged on the DAC proposal, particularly the requirement for each company to act as trustee for one master trust only.
This requirement could be unduly restrictive given there is currently no restriction in Irish trust law generally against a trustee being involved in more than one scheme.
Conflicts of Interest
The consultation paper recognises the fact that master trusts may be run for profit. This can create conflict of interest issues unique to master trusts. Thus, the paper recommends that master trusts be:
- Unambiguously run in the best interest of its members
- Have a written policy on conflicts of interest
- Prohibit any contractual conditions binding the master trust to particular service providers, and
- Ensure the segregation of assets
While cognisant of the need to prevent conflicts, the industry response to these proposals has been largely negative. Criticism has pointed to the inherent nature of conflicts in the pensions market and the need to allow trustees to exercise their judgement.
The unclear scope of the prohibition on contractual conditions has been questioned, along with the potential for the proposal to cause undue restriction.
Communication is key
Master trusts differ from traditional schemes in that the employer is more detached from involvement and communication with members. In order to bridge any gap in communication, the consultation has addressed the way in which master trusts should keep their members informed.
The Pensions Authority has suggested a detailed written policy for active engagement with employers and members, with an annual meeting to facilitate access to trustees.
The use of technology will be key to managing the cross-employer communication. What has not been well received by the industry is the annual meeting proposal. It has been derided as an impractical and cost inefficient method of communicating with such a large number of members.
The window for submitting responses to the consultation closed in October 2018. The industry submissions are now being considered by the Pensions Authority.
The consultation process will likely result in new, bespoke regulations to deal with master trusts. The extent to which the Pensions Authority will be influenced by responses received from the industry is unclear, but any regulation will have a major impact on the Irish pensions market. Employers and trustees will need to keep abreast of these developments, as master trusts figure to be a major factor in future of pensions.
Master trusts undoubtedly have a part to play in the development of a sustainable system of pension provision in Ireland. The content of the master trust regulations will determine the extent to which they could become a feature of the Irish pensions landscape.