The Pensions Council in Ireland has published a paper that aims to provide practical guidance for employers and trustees when considering and working through the transition to a master trust.

Amid the increasing number of employers and employees moving to master trusts in Ireland, the Pensions Council has undertaken a review of the transition exercise and the main points of consideration for stakeholders in navigating the move.

It noted that moving to a master trust gave employers the opportunity to reassess pension provision, including the terms available to pension savers, member communications, servicing supports, and the contractual terms governing such arrangements.

In the guidance, the Pensions Council outlined the key roles of the employer and the trustee when moving to a master trust, and detailed their responsibilities for the transition.

“Trustees have fiduciary duties to pension scheme members and must act in their best interests which is generally taken to mean best financial interests,” the Pensions Council stated.

“In consenting to transfer to a master trust, trustees must be able to satisfy themselves that the move is in the best overall interests of members.

“By undertaking an appropriate level of due diligence and market analysis, an employer should be able to address the reasonable concerns of trustees in this regard.”

The Pensions Council also highlighted the standards of due diligence that trustees and employers must meet.

Trustees were urged to gain understanding of the commercial and legal terms governing the master trust; the range of funds available; the charging structure; how death in service benefits will be provided; future flexibilities; and the transition process.

Reflecting on these expectations, employers have several areas of due diligence and market analysis they must consider, including documentation; compliance standards; charging structure; investment; indemnity provisions; member communications; and ongoing management of the master trust.

The Pensions Council noted that standards can vary across master trust providers and, while this is an area that is “developing and improving”, there are several additional considerations to be made when transitioning to a master trust.

It stated that the approach to transition, and therefore the transition documentation, is different for each provider.

Consequently, transition documentation should be reviewed to ensure the legal and commercial terms governing the transition and participation in the master trust are effective and fully understood.

Furthermore, it stressed the importance of understanding the different investment approaches of master trusts and that communications to members were tailored to each circumstance.

The Pensions Council also highlighted the differences in transition processes, including of existing scheme details; the treatment of deferred members; and post transition.

“In moving to master trust, employers should consider how it wishes to oversee the operation of the pension arrangement into the future,” the council said.

“While there will be trustees at the master trust level, there will be value in having focused local oversight and engagement, particularly where the pension benefits are a key part of that employer’s reward proposition.

“There is regulatory support for engagement at the individual employer level: Under the Pensions Authority Code of Practice, a formal communication policy needs to be in place between master trust trustees and each participating employer.

“The 2023 Pensions Authority review of master trust practices around engagement with employers found varying standards in place.

“Some master trust trustee boards had not actively engaged with employer participants, one trustee board advised that its founder held an employer conference and another board advised that an employer newsletter was issued during 2023 outlining how the master trust had grown in the last year, IORP II compliance and the master trust’s risk governance framework.

“Having this oversight ensures that pension engagement, communications, service standards and overall performance are as expected by an employer who is participating in a master trust, and this would increasingly be seen as best practice.”

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