An Irish pension adviser has warned that there is a potential conflict of interest that employees need to be aware of when selecting a master trust.

Lockton Employee Benefits partner, Raymond McKenna, has highlighted that there are eight different master trusts in the Irish market operated by insurers and some of the largest pension advisers. “This could lead to a potential conflict of interest where current scheme advisers may also be a master trust provider,” he explained.

Master trusts are set to play an important part in the Irish pensions market going forward following the introduction of the IORP II Directive last year. Most occupational pension schemes have until the end of 2022 to fully comply with the new legislation.

“The directive imposes a much higher standard of governance, risk control, and member communications on company pension schemes. Employers have until the end of 2022 to fully comply with the regulations. The process of understanding the new regulations, the options facing the scheme, seeking and assessing pitches from various master trusts, assuming they go that route, will take time. Firms should be aware that the master trust of their adviser may not always offer the best deal for their employees”.

The standards, which will transform how pension schemes operate, have been described by the Pension Authority as the most significant change for pensions in a generation. As of December 2020 there were circa 82,000 defined contribution pension schemes in Ireland; the Pensions Authority’s ambition is to reduce this to less than 200.

“If an employer decides to continue to operate their own pension scheme, they will need to fully comply with the IORP II Directive as failure to do so could ultimately result in the loss of tax relief, which would be a huge issue for both employers and employees.

“As the requirements are so onerous, most schemes will look to move to a master trust, effectively an ‘umbrella’ scheme for multiple employers where all governance requirements are undertaken centrally by the master trust and its trustees. The cost of risk and compliance is spread across the participating employers.”

The move to a master trust is a significant event that will have an impact on employees and their retirement savings. Lockton advises that employers need to exercise the appropriate governance in advance of any move. They should engage with a completely impartial adviser that has the experience and expertise to help employers navigate this significant change.

“The cost variation can be huge. We are seeing variations in the market of 40-50 per cent p.a. However, the lowest cost does not always mean the best fit for an organisation, it’s a cost-plus service discussion where employers need someone who can impartially advise the benefits and service offering of the different providers. A lot of employers like their current provider and may wish to select them for the master trust, I have been involved in some such cases and we have still been able to negotiate a reduction in fees on the basis,” McKenna said.

The eight players in the market currently include Mercer, Willis Towers Watson, Aon, Invesco, APT, Irish Life, Zurich Life and New Ireland. However, Irish Life owns Invesco and APT, meaning it own three of the current master trusts in the market.

“In addition to good governance, engaging with an impartial adviser can deliver lower charges for employees and ensure that the best range of services for members are included in the overall offering. This will allow employees better plan for their retirement and increase the likelihood of people having more money in their pension funds when they retire,” McKenna concluded.

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