Aviva says the Office of Fair Trading’s report into the UK defined contribution pensions market could “kill off” commercial master trusts.
The OFT yesterday published a study into the DC market which sets out serious concerns about a lack of competition, legacy charges and poor governance standards.
The report also warns trustees of multi-employer master trust arrangements “may not be sufficiently independent of the master trust provider to avoid potential conflicts of interest and always act in members’ interests”.
It says: “We recommend that the key elements of this governance solution – including the importance of governance being independent, expert, considering all elements of value for money and having the ability to ensure that concerns are appropriately addressed in the interests of members where necessary – should be embedded by the Government in a minimum governance standard that will apply to all pension schemes.
“On the trust side, including master trusts, this standard would need suitable definition and oversight to ensure that trustees are genuinely able to carry out their fiduciary duty, including by moving scheme assets to alternative fund managers and administrators where that is in the members’ interests.”
Pensions minister Steve Webb has said the Government will act on the OFT’s recommendations.
Aviva head of policy, pensions and investments John Lawson says the OFT’s proposals, if adopted by the Government, will make master trusts “commercially unviable” for insurance companies.
He says: “This will kill commercial master trusts stone dead. The OFT said they are concerned about the independence of the governance in master trusts and they are also concerned the governors will not sack the administrator or the investment manager if they fail to perform.
“To me that says two things. Firstly, these master trusts will have to separately identify the costs for administration and the costs for investment management. Secondly, they will have to accept the possibility they will be sacked in the future.
“Commercial master trust providers are pricing their business on the basis they will keep that business for 20 years or longer, but if you have independent governors you cannot rely on that.
“To my mind this will kill the commercial master trust model. For any master trust that is tied to an administrator or an investment manager in the long-term the financials just do not work.”
Legal & General is one of the largest master trust providers in the UK.
L&G pensions strategy director Adrian Boulding says: “We already have an independent governance committee in place for our master trust, so as far as we are concerned this is business as usual.”
Standard Life head of workplace strategy Jamie Jenkins says: “We have no ownership of Pitman’s, the independent trustee for our master trust, and if they think we are doing a bad job and want to make a change then they will do that.
“I do not think the OFT’s concern is to break up commercial master trusts. I think they want to make sure there are not conflicts of interest in that relationship which risk compromising member outcomes.”