Guest blog: Increasing Resilience in turbulent times – Defined Benefit Master Trusts – the “new normal”

Guest blog by BSA Associate, TPT Retirement Solutions

Guest blog by BSA Associate, TPT Retirement Solutions

The pandemic has caused plenty of problems for Societies, logistically for staff working from home, whether to keep branches open, the increasing workloads caused by mortgage holidays and helping vulnerable customers. For most Societies with Defined Benefit (DB) schemes, the DB scheme has been an additional source of worry and has taken up valuable time managing it. However, there are solutions for Societies to:

  • reduce the time Societies need to spend running the scheme
  • strengthen governance
  • reduce risk by improving  the scheme’s funding and investment strategy (and improving the ICAAP position)
  • reduce the running costs.

The pandemic and subsequent lockdown has highlighted the problems with running stand-alone schemes.

Funding positions have deteriorated with the PwC Skyval Index showing an average reduction of circa 4% in the funding levels of UK DB schemes between 1 January and 30 September 2020.

Trustees may have struggled to manage their role, potentially unable to make quick strategic decisions, and have been competing with trustees of other schemes for their adviser’s time. Many of these Trustees will also have important roles within their Society leading to a difficult balancing act with the demands on their time between their Trustee duties and Society role.

Weaknesses in administration systems have also been exposed. A number of administrators incredibly still rely on some form of paper filing system for member records, even if member data is online. This has posed problems when administrators have been working from home and cannot access the paper files.  Performance against Service Level Agreements (SLAs) are so poor some administrators have stopped issuing administration reports.

Running costs are also increasing at a fast rate and any issues like those created by the pandemic, invariably lead to additional “non-routine” work leading to additional fees.

However, there are alternative more modern governance structures which have been embraced by a few Societies already, which can mitigate these problems, one of which is the DB Master Trust.

The scale of a DB Master Trust allows more sophisticated investment and funding strategies than a scheme can develop on its own, leading to greater diversification of assets and lower volatility of funding positions.

Master Trusts provide robust, day-to-day governance, which means that key staff can concentrate on their roles within the Society, with the comfort that the scheme is being well looked after. A Master Trust can be flexible and nimble with decision making, giving schemes far more care and attention than they would receive under a standalone basis.

A Master Trust also offers an enhanced service for members. Master Trusts which do not rely on any paper files, will not have the issues accessing member files which some administrators have had.

All of this can achieved with significantly lower annual running costs, due to the economies of scale a Master Trust can generate. Multiply the savings over a 10 year period, that’s a significant amount of extra cash available for investment in the Society or sharing with the pension scheme to improve the funding position, increasing resilience in the pension scheme and improving the Society’s ICAAP position.

If the last six months have taught us anything Societies should not just stick with something because that is how ‘it’s always been run’ it’s time to challenge past processes and look forward to a new normal.