Master Trusts 02•2017

dcif.co.uk

Investment DesignsA Comprehensive Study

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About Us 3

The Chair’s Foreword 5

Executive Summary 7

The Master Trust Universe 9 Overview of Master Trusts 9 Research process 9 General comments 9 Sponsors 9 Target markets 11 Service providers 13 Investment integration and decision-making 15 Regulation and standards 16 Structure of Master Trust boards and responsibilities 16 Master Trust Assurance framework (MAF) 16 Pension Quality Mark (PQM) Ready 16 The Pensions Bill 2016 17 Charges and Value for members 17 Charges 17 Value for members 19

Investment 21 Standard investment propositions 21 Principal defaults 21 Lifecycles, Lifestyles, Target Date Funds 23 Default lifecycles 23 Asset allocation 24 Non-default lifecycles 24 Self-select 26 Bespoke investment designs 27 Ability to tailor designs 27 Investment advice concerning bespoke content 27 Trends in investment 31 Use of active, smart beta and illiquid management 31 Freedom and choice 31 Transaction costs 32 Investment performance and transparency 33

Observations by the DCIF 35

Jargon and acronyms 36

Appendix: Master Trust data 37

Contents

Produced for the DCIFWords: Nico AspinallDesign: Jennifer van Schoor

© DCIF 2017

Citation: Nico Aspinall, Master Trusts – Investment Designs: a comprehensive study, (DCIF, 2017)

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Dedicated to promoting investment excellence

The Defined Contribution Investment Forum (DCIF) aims to exchange ideas and develop initiatives to promote investment excellence in Defined Contribution (DC) pensions in the UK. The DCIF consists of investment firms and selected other industry participants who believe that members in DC pension schemes deserve the best possible investment services to help them meet their retirement objectives.

dcif.co.uk

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About us

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Master Trusts are growing dramatically and are changing the defined contribution landscape as they go. As employers continue to automatically enrol their staff into pension

schemes, a direction of travel is emerging. Almost half (49%) of people who have been auto-enrolled have been put into Master Trusts, according to the Pensions Policy Institute.1

With Master Trusts capturing a significant proportion of savers’ assets, attention is turning to how they act as stewards of these assets. How Master Trusts communicate, the way that they manage their data and the efficacy of their governance have all been closely examined by the press, politicians, regulators and researchers. Most importantly, anecdotal evidence suggests that these issues are being scrutinised by employers when they carry out selection processes.

However, one integral selection criterion has been left off the list. To date, Master Trusts’ investment strategies have received very little attention. Master Trusts make public varying amounts of information about what is informing their investment philosophies and strategies, making it difficult to compare like with like and, in some cases, to find out much information at all.

To the DCIF’s members, this seems perplexing. Contribution rates and investment returns are the two factors which will most impact savers’ retirement outcomes. Today, employers may be focused on complying with auto-enrolment, but it’s equally important to look to the future – and to ensure that the Master Trust they have appointed looks to the future in their investment design.

That’s why, after a competitive selection process, we decided to commission Nico Aspinall Consulting to investigate the principles underpinning Master Trusts’ investment philosophies, as well as how they are designing investment strategies in practice.

We are delighted to have worked with Nico, who is one of the UK’s foremost DC consultants, having spent more than a decade working in DC, both in-house and as a consultant. As a result, he has a forensic knowledge of the fast-evolving Master Trust industry, as well as the needs of employers and savers. We thank him for his thorough and

considered approach to this project. Our thanks must also go to the 17 Master

Trusts which kindly participated in this research, helping us to develop what we believe is the first comprehensive look at the market from an investment standpoint. They kindly sent us numerous documents, including their Statements of Investment Principles and Chairs’ statements on value for money, as well as taking the time to be interviewed by Nico. Turn to p37 to view a list of those which participated, and more detail on our research methodology is available on p9.

At times, this report challenges the Master Trusts industry. Having conducted a thorough audit of the processes and views informing their investment strategy, as critical friends, we question whether many have achieved the levels of sophistication and diversification necessary to achieve the best possible outcomes for scheme members. Investment solutions are evolving by the day in this fast-changing DC landscape. Only by regularly and actively engaging with asset allocation will scheme decision-makers make the best possible choices on behalf of members.

We are keen for this report to be the catalyst for a better dialogue between the investment industry and Master Trusts. We very much hope to engage with the Master Trust sector and ensure we are serving their needs to the very best of our abilities. In other words, our door is open and we hope to have a better mutual dialogue with you.

The Chair’s Foreword

Rob Barrett, chair, DC Investment Forum

Notes1 The Future Book, Second Edition, Pensions Policy Institute, 2016, p16

To date, Master Trusts’ investment strategies have received very little attention

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Executive summaryThis report finds scope for improvement in the investment quality of the market

This report provides a snapshot of the UK Master Trust environment in 2016. It is early days for a sector expected to grow significantly in the next few years. However, the primary focus of Master Trusts so far has been either to compete for auto-enrolment business, or to attract

larger employers to consolidate their DC pension benefits, not the quality of the investment proposition. This report finds scope for improvement in the investment quality of much of the market and covers the following topics:

Quality gap: There is a significant gap between the investment quality offered by auto-enrolment Master Trusts aiming at smaller employers and those targeting larger employers. The Master Trusts aiming at small employers are referred to as auto-enrolment Master Trusts. They have introduced very little diversity into their investment designs, almost exclusively investing in passive equities.

Passive dominance: In the industry overall there is a predominance of passively managed funds with little smart beta or full active investment used. Most of the industry has been trying to offer the lowest possible ongoing cost to employers and while this is laudable, it has squeezed the higher quality assets accessed by other institutional investors out of the picture. Members of Master Trusts appear significantly more exposed to market volatility than might be the case either with a higher charge cap or with sponsors more open to including actively managed and smart beta opportunities.

Market disclosures: There are real issues with the interpretation of Value for Members / Money, investment performance and the transaction costs disclosures Master Trusts are required to make. All Master Trusts rate each of their defaults to be Value for Money, but have done little to compare their multiple defaults or their default with others. None of these disclosures are useful in understanding and comparing the investment processes going on within each Master Trust. The Pensions Regulator (tPR) should do more to improve and standardise the disclosures in these three areas.

Choice through Lifecycles: Master Trusts do offer a wider range of lifecycle funds to members than expected, with many offering members choices of risk, retirement objective, investment budget and ethics with lifecycle funds. This reflects a trend away from expecting members to be able to make asset allocation decisions within self-select, single asset class ranges. This is a positive development as it offers individuals more relevant choices than a list of asset classes.

Post-retirement pending: Most Master Trusts hope to retain members after they retire, recently opening themselves up to post-retirement investment. However, they have done very little with their investment fund ranges and by and large they have carried over the same pre-retirement funds into the post-retirement space. Some post-retirement fund designs are recognised as having potential, from distribution units to incorporating guarantees, but none are available as yet.

ESG a secondary consideration: It is notable that ESG and ethical considerations are in general relegated to self-select fund ranges. Indeed, this is one of the only areas where auto-enrolment focussed Master Trusts outperform their large employer competitors – incorporating ESG principles into lifecycle options for members.

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Overview of Master TrustsResearch processThe DCIF contacted a number of prominent Master Trusts to be involved in this survey. Copies of their latest Report and Accounts and the Statement of Investment Principles were requested, as well as asking Master Trusts to fill out a short survey on their market positioning and views around the investment designs they employ. This was followed up with interviews to confirm the data provided and discuss the views expressed. This report is divided into two sections. The first section provides an overview of the findings on the Master Trust market and how it invests its members’ savings. The second section provides detail on each of the Master Trusts included in the research.

The report’s focus is on the Master Trusts offered by leading consultants and insurance companies, as well as those in the independent sector who have been awarded the Master Trust Assurance Framework (MAF), as this should cover the majority of employees in this market. It was pleasing that most Master Trusts invited to participate in the research agreed to do so.

General commentsMulti-employer trusts offer employers of all sizes a common vehicle for pooling their employee pension benefits, gaining benefits of scale and therefore reducing the costs to employers and members of running separate trusts for each employer. While numerous large corporates have employees from more than one group company accruing and receiving benefits in the same trust (a single employer trust), Master Trusts are multi-employer trusts for non-associated employers. As such they generally have a founder in the role of principal employer who has offered access to the Master Trust to others. While some Master Trusts have been set up by the government and industry bodies on a not-for-profit basis, the majority in the survey have a founder who set these up on a commercial basis.

Master Trusts which provide pension benefits existed long before auto-enrolment was introduced in 2012, but there is no doubt that the government policy of ensuring that all employees have access to a pension has created a significant impetus to this structure of pension provision. While a number of Master Trusts in the survey existed prior to 2008, the vast majority were created following this reform.

Employers not wishing to have their own trust-based arrangement have a choice between using:• a Master Trust arrangement; or• a contract-based scheme.

To use a Master Trust the employer enters into a deed of participation and employees remain linked to that employer. To use a contract-based arrangement, employers select the insurance provider but have no ongoing contractual relationship with the scheme. While employers have not been interviewed as a part of this research, anecdotally it would appear that the benefit for employers in using Master Trusts rather than contract-based arrangements comes down to either a sense of improved governance offered by trustees of Master Trusts relative to contract-based arrangements; or to passing on the burden of communicating with employees to trustees, particularly in the case of smaller schemes. Whether the introduction of Independent Governance Committees (IGCs) brought in in April 2015 to improve the governance of contract-based arrangements redresses this perceived governance gap remains to be seen.

SponsorsAs a part of the research three broad groups of entities who have organised Master Trusts have been identified. These are consultants; insurance companies; and independent Master Trusts sponsored by industry bodies, the state and new entrants into the pensions market. This distinction is made in all the subsequent charts in this report.

Consultant-led Master Trusts: Employee Benefits Consultants (EBCs) and Independent Financial Advisors (IFAs) have launched Master Trusts, recognising that on the one hand that their relationship with employers means that they are well-aligned to make Master Trust sales and carry out ongoing consulting around the benefit; and on the other perceiving that there will be a long-term trend of consolidation of existing single employer trusts which form much of their client-base in the UK DC market.

While IFAs were among the first to launch Master Trusts, by nature of the smaller employee populations in their clients, these are smaller businesses than the EBCs. EBCs have been the latest entrant into the Master Trust market, with a number of EBC sponsored Master Trusts launched within the last year.

The Master Trusts in this category in the research were the Aon Master Trust, Atlas Master Trust (sponsored by Capita Employee Benefits), The Mercer Workplace Savings Master Trust, LifeSight (sponsored by Willis Towers Watson) and National Pensions Trust (sponsored by Xafinity Consulting).

The Master Trust universe

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Insurance-led Master Trusts: Insurance companies have launched Master Trusts recognising that these can be delivered with the same administration processes and investment funds that support their contract-based and trust-based outsourced administration businesses. Master Trusts have additional governance requirements through the need to appoint independent trustees, though this increasingly mirrors governance requirements for contract-based arrangements in the need to appoint an IGC.

The Master Trusts in this category in the research were the BlackRock Master Trust, The Fidelity Master Trust, Friends Life Master Trust, The Legal and General WorkSave Master Trust, Standard Life DC Master Trust and the Zurich Master Trust.

Independent Master Trusts: Industry bodies, the state and new entrants while very distinct from each other can be grouped together on the basis that they have no pre-existing advisory or administrative capability prior to the launch of their Master Trust. The motivations for launching a Master Trust differ for each group, with a number acting in a not-for-profit capacity (the industry bodies and the state) and a number joining the Master Trust market in a commercial capacity. The National Employee Savings Trust (NEST) has a unique role and sits in this category, being the only

scheme obliged by law to permit any employer to enrol their employees with it.

The Master Trusts in this category in the research were The BlueSky Pension Scheme, the National Employment Savings Trust (NEST), NOW: Pensions, The Pensions Trust (TPT), The People’s Pension and Smart Pension.

It is not possible to generalise around the use of external or internal fund management using these categories. There are examples of consultant-led, insurance-led and independent Master Trusts who only use external investment managers, and consultant-led and insurance-led Master Trusts who predominantly use their in-house investment management capabilities. While insurance-led Master Trusts are more likely to have access to funds managed by the insurance company, consultant-led Master Trusts more commonly use the manager of manager funds provided by the EBC. No independents act as investment managers at present, though a number discussed ambitions to follow a manager of manager approach in future.

Target marketsThe market for Master Trusts is formed by employers seeking to provide a pensions vehicle for future accrual of benefits, and by employers seeking to deal with past accrual of legacy benefits. Three distinct target markets for Master Trusts have

Fig 1. notes

1 Where the same sponsor has multiple schemes the figures have been added together.

2 Figures taken from latest report and accounts, or from current estimates provided, so have a range of reporting dates.

Figure 1. Size of UK Master Trusts

0 500 1000 1500 2000 2500 3000 35000

100

200

300

400

500 Consultant-ledInsurance-ledIndependent

Assets Under Management (AUM, £m)

Ann

ual c

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ions

(£m

pa

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Master Trusts have additional governance requirements through the need to appoint independent trustees

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been categorised, though these are not mutually exclusive. These are meeting small employer or low-paid employee auto-enrolment obligations; offering a DC scheme to larger employers; or consolidating existing DC schemes. While most Master Trusts can be used for all three purposes, the degree to which they target each market differs.

Auto-enrolment: while all members of an occupational pension scheme are subject to auto-enrolment legislation, a number of Master Trusts specifically target the benefits of the lower-paid and smaller employer workforces who have not previously participated in pension saving. Both groups are more expensive to administer on a per member basis, either because they have lower than average contributions or because there are fewer members on each payroll, reducing the benefits of scale a larger payroll file offers. As a result, the employer has little leverage in negotiation and the Master Trusts focussing on this part of the market tend to offer a fixed member charge and an investment line up which cannot be tailored by the employer. Some Master Trusts also charge employers for participating in the plan, either on a fixed monthly cost basis, or on a per member basis. The majority of independent Master Trusts which responded to the survey targeted this market, with a smaller number of consultant-led Master Trusts targeting this market, and none of the insured Master Trusts.

Investment designs in the auto-enrolment sector tend to be the same for all participating employers; are mainly focussed on passively managed equities in the growth phase of members’ investments; and aim towards providing a lump sum at retirement.

Large employers: as employee numbers and average contributions increase, the employer gains more leverage to reduce the charge levied on members and to bespoke the investment design of the Master Trust if required. This market is highly competitive, with Master Trusts going through an individual underwriting process to offer a price (member charge) for each employer separately. Consolidating existing pensions either in contract-based or in trust-based provision helps to improve the economics from the Master Trust’s perspective, so where these are included the charge to members reduces. However, consolidation has been categorised as a separate strategy. The Master Trusts targeting this part of the market are dominated by insurance company offerings, aligning well to their existing processes

for winning contract-based provision.Investment designs for large employers tend to

be more sophisticated where the employer is not influencing the design, more likely to be diversified across asset classes and to use active management within the design. At retirement, benefits are more likely to be targeted towards drawdown, though this can often be varied by the employer. Towards the higher end of this market, employers can often design the entire investment proposition themselves.

Consolidation: while the auto-enrolment and large employer strategies target future accrual of pension benefits, the consolidation market is more focussed on past accrual. There are several possible sources of consolidated DC benefits including deferred DC benefits, the Additional Voluntary Contribution (AVC) (benefits in DB schemes), single employer trust members wishing to find a post-retirement solution and the transferred out benefits of DB members, converted into DC benefits.

Consolidation often requires the sign-off of a scheme actuary who is required to certify that the transferring members will receive broadly the same benefits. As there is limited guidance for actuaries, in practice Master Trusts can harmonise their designs with those in the scheme that is being closed. While few employers have been through this process, this ability is a key differentiator for Master Trusts targeting a consolidation strategy.

In today’s straitened financial climate, many employers with trust-based provision look at the rapidly changing landscape of pensions and wonder whether they should continue to pay advisory and administrative fees for benefits relating to past employees. Further, freedom and choice raises fiduciary risk issues in the treatment of individuals once they have to rely on their pension pots. This has stimulated a number of employers to close their existing DC trusts and seek to consolidate the assets in a Master Trust. This strategy includes the future accrual of pensions, so is not completely distinct from auto-enrolment or large employer strategies, but there is an increased focus for Master Trusts targeting this market. They are dominated by consultant-led Master Trusts, though both insurance company and independent Master Trusts recognise that consolidation of existing pension pots improves the economics of the scheme and reduces the charges to members. This market is the most competitive in terms of pricing.

Each Master Trust which individually prices employers will have different criteria and

weightings, meaning that there is not a fixed number of employees or average contribution size below which only the auto-enrolment Master Trusts will compete for business. However, it is clear that businesses with fewer than 50 employees will almost exclusively be served by the auto-enrolment Master Trusts. In the range of 50 – 250 employees and above there is increasing competition from the larger employer Master Trusts. Above this number of employees, while the auto-enrolment Master Trusts would be happy to win the schemes, in practice they realise that they are uncompetitive in this market and do not see it as their main target.

Service providersThere are six key areas to consider when understanding who is responsible for the running of a DC Master Trust:• Sponsor – the founding employer or entity who

initiated the scheme.• Trustees – ultimately responsible for the

governance of the scheme and for procuring these services.

• Administrator – responsible for member record-keeping, aligning payroll contributions to members and cashflows to investment funds, and communications. This may be provided by a consultant as a Third Party Administrator (TPA) or an insurance company along with the investment platform.

• Investment platform – responsible for blending

together units issued by investment managers into member funds, creating the unit prices for these funds and managing cashflows from the administrator to the investment managers.

• Investment manager – responsible for investment decisions to outperform market benchmarks or achieve other objectives.

• The trustee advisor(s) – responsible for giving the trustees investment and legal advice around accounting, regulatory issues and compliance.

The employer advisors have not been included in constructing this list, though they can have two roles in shaping the investment design for large employers, where the employee population or average contributions are large enough to make tailoring investment designs commercially attractive to the Master Trust. The first is providing advice to the employer governance committee over the investment design at outset and on an ongoing basis. In this case the employer may request alterations in design but this would be approached on a commercial basis. The second is acting either directly or indirectly as trustee advisors regarding tailored investment designs. These approaches are covered in more detail on p27.

The sponsor or founder of the Master Trust may offer a number of these services to the trustees, depending on the services they deliver in occupational pensions already, and the alignment of these services to the design of the Master Trusts.

Figure 2. The division of the Master Trust market between the consultant-led, insurance-led and independent Master Trusts is useful for understanding norms in each section of the market.

Sponsor Trustees Administrator Investment Platform Investment management

Advisors

Consultant-led Named individuals or unique trustee company

Consultant’s TPA or outsourced to an insurance company

Outsourced to an insurance company

Consultant as fiduciary or outsourced to investment managers

Consultant’s

Insurance-led Named individuals, unique trustee company or independent trustee company

Insurance company’s

Insurance company’s

Insurance company’s or outsourced to investment managers

External consultant

Independent Named individuals, unique trustee company or independent trustee company

Outsourced to a TPA or an insurance company

Outsourced to an insurance company or custodian

Outsourced to investment managers

External consultant

Fig 2. key

Sponsor often provides service to Master Trust

Sponsor does not provide service to Master Trust

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Investment integration and decision-makingVertical and horizontal integration are useful terms for further explaining the investment design and implementation within Master Trusts. In particular, it helps to highlight some of the issues in the sector in understanding investment decision-making and responsibility.

Vertical integration refers to the situation where the sponsor of the Master Trust also provides the investment management to the Master Trust. This has the positive effect of reducing the cost of investment management, as set-up costs reduce (there is no additional procurement required) and a larger proportion of the fees charged to members goes to the sponsor, increasing the potential margin for the Master Trust. This either means the Master Trust can be a going concern with lower numbers of members and assets, or means that the lower costs can be passed onto members, meaning that smaller schemes and members with lower contributions can be given access to a particular Master Trust. Vertical integration is common among insurance-led Master Trusts.

Horizontal integration refers to the situation where the sponsor of the Master Trust provides the same DC solution (ie the same default, lifecycles and investment fund choices) in other types of pension vehicle; their bundled administration service for single employer trusts and Group Personal Pension (GPP) products. Offering the same investment designs in each product range increases the size of each fund and again either results in a smaller viable product size, reduced fee to members, increased eligibility or a higher quality of investment design. Horizontal integration is common among both consultant-led and insurance-led Master Trusts.

When it comes to decision-making around investments, however, vertical and horizontal integration effect the role of the trustees and the investment advice they seek. In both cases the sponsor has an interest in keeping the investment design of the Master Trust either with the investment manager (vertical integration) or in the DC solutions (horizontal integration) it owns. The trustees therefore seek investment advice over the suitability of a manager which has been pre-selected or designs which already exist, rather than carrying out selections and design work themselves, as would be the case for an independent Master Trust. In the case of the consultant-led Master Trusts, this advice also comes from the sponsor. Though the trustee has a theoretical veto over the sponsor’s wishes, and could

impose their own designs, this has not been the case in the solutions reviewed.

This blurs the lines of responsibility for investment between the sponsor, the trustees and their advisors and this may become an important issue if any of these investment designs underperform materially in future. These lines can be blurred further by the use of an employer-appointed advisor to influence the investment design and tailor it for each employer. For asset managers, this presents a complicated picture of who the true decision-maker for each Master Trust’s investment programme is, who are influencers and who have no voice. Each Master Trust will be different and rely on internal and external processes to different degrees.

Though the trustee has atheoretical veto over the sponsor, and could impose their own designs, they have not done so

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The Pensions Bill 2016Receiving its first reading in the House of Lords on 19 October 2016, the Pensions Bill 2016 focusses on additional regulations of Master Trusts. Most prominent of the new regulations is the requirement for all Master Trusts to obtain authorisation from tPR to be able to operate. In addition, the Bill requires a number of individuals around a Master Trust to pass a “fit and proper” test; and for Master Trusts to maintain a business plan demonstrating their ongoing financial solvency and a continuity strategy, outlining how members are to be protected in the event of “triggering events” – essentially the withdrawal of authorisation or likely insolvency of the Master Trust. It introduces the concept of a “scheme funder” – the entity liable to finance any shortfalls within the in the scheme, and entitled to receive any surpluses.

These are welcome changes in enhancing the protections available to members of Master Trusts. Although interviews had been completed by the stage the Bill was published, the consistency in terms of protections for contract-based arrangements and Master Trust benefits was discussed, raised in particular by insurance-led Master Trusts. Insurance-led Master Trusts are expected to welcome the Bill’s provisions around continuity strategies in the belief that this helps to level the playing field between the regulatory capital held by insurers, and by independent and consultant-led Master Trusts. Insurance providers are required to reserve capital to protect policyholders from an insolvency event and the continuity strategy requirements are similar to this for Master Trusts. While it does not appear that Master Trusts will be subject to a Solvency II level of protection (which asks insurance companies to remain solvent in the light of all but a “1 in 200 year” event) it should be seen as a step in the right direction.

For smaller Master Trusts, which have mostly fallen outside of the survey, the new provisions may provide an existential threat. Where a scheme funder cannot demonstrate it has sufficient solvency to support the scheme if the business plan is not fulfilled, does not have sufficient depth of resource to fill the fit and proper individuals, or to ensure a sufficient level of protection in their continuity strategy, it may find that it does not receive authorisation.

Charges and Value for membersChargesThe charge cap regulations limit the member charges for members of a scheme default to 0.75% a year of funds under management, though these can be collected through pure ad valorem fees (i.e. of 0.75% pa); a combination of contribution charges and ad valorem fees (eg NEST charges 1.80% on contributions and 0.30% pa on existing funds); or a combination of fixed member charges and ad valorem fees (eg NOW: Pensions charges £1.50 per member per month and 0.30% pa on existing funds). As Master Trusts levy charges on members for administration, the investment budget remaining for default investments is lower, often substantially, than 0.75% pa.

Two distinct pricing regimes can be noted in the Master Trust market. Employees of smaller companies pay a fixed price regardless of any scheme characteristics and employers may pick up some set-up or ongoing costs. Meanwhile, employees of larger employers are priced individually depending on their scheme characteristics, including whether their investments have been tailored by their employers, and the employer does not pay any additional costs.

Auto-enrolment – Master Trusts in this sector have member charges at two levels. The first group has member charges equivalent to 0.50% p.a., below the charge cap; the second group levies member charges at the level (or just below) the charge cap of 0.75% p.a. Several Master Trusts also charge fees to employers, either on joining the scheme or as a regular charge. These fees may vary depending on employee population characteristics but all members of these Master Trusts pay the same amount in charges and receive the same investment proposition. The main basis for competition in this market appears to be the charges to and ease of access for employers.

Large employers – employers of a size to negotiate on the terms and designs for members will, in general, use an independent consultant to choose a Master Trust from the large employer market. Generally, such employers favour insurance and consultant-led Master Trusts. While some exceptions exist, this process aims to force down the charges for members for the standard product range, or to seek to improve the proposition, in particular features of investment design and member engagement. Most of these Master Trusts will be amenable to tailoring the investment

Regulation and standardsStructure of Master Trust boards and responsibilitiesRegulations which came into force in April 2015 required “relevant Multi-Employer schemes”, which include Master Trusts, to meet certain conditions for the appointment of trustees to their boards. These include the requirements to have at least three trustees (or trustee directors where a trustee company is used) and for a majority of these to be independent, so not affiliated with any company that provides advisory, administration, investment or other services to the scheme. While many Master Trust trustee boards have met this requirement already, a number have made changes to reflect the new requirements. Many of the insurance company Master Trusts have the same board of trustees for the Master Trust and for their IGC focused on the governance of their contract-based arrangements. Acting as a member of an IGC is specifically excluded from affiliation in the definition of independence.

Independent pension trustees have a significant market in Master Trusts and related IGCs for insurance companies. While there are a number of individuals in this market, there are also a number of independent trustee firms who have been appointed to a number of boards. Independent trustees can potentially offer greater resources and reduce key-man risk by employing a team of directors, though this comes at an increased risk of “group-think” if they are widely appointed across the market.

The Pensions Act 1995 requires trustees to seek “proper” advice before investing in any manner. While consultant-led Master Trusts use consultants from the sponsor to provide this advice, the remaining Master Trusts have sought investment advice from other consultants who do not have a commercial conflict of interest (eg by running their own Master Trust). This has led to a market opportunity for smaller EBCs and specialist investment consultants to provide investment advice to the insurance-led and Independent Master Trust markets.

Master Trust Assurance framework (MAF)The Master Trust Assurance framework (AAF 02/07) was developed by the Institute of Chartered Accountants in England and Wales (ICAEW) in partnership with tPR. It was designed to help Master Trust trustees assess whether their scheme meets equivalent standards of governance and administration to those set out in the DC code which applies to single employer trusts. It was introduced in 2015 and is already seen as providing the governance standard for Master Trusts with 12 Master Trusts (as at 30 September 2016) attaining it so far. A number of the consolidation-oriented Master Trusts have not obtained it so far, but will apply for recognition that they meet this standard as their first schemes consolidate (some of the standards relate to member communications, which will not be issued until then).

Pension Quality Mark (PQM) ReadyThe PQM Ready standards were developed by the Pensions and Lifetime Savings Association (PLSA, formerly the National Association Pension Funds, NAPF) to offer employers a comparable standard to their PQM, which applies to single employer trusts. The key distinction between the PQM and PQM Ready standards are the recognition that contribution rates are not the subject of governance for trustees, and that different employers will contribute at different rates in a Master Trust. PQM Ready therefore is a standard which assesses non-contribution areas of governance and design.

Although some Master Trusts have achieved PQM Ready status, comments raised in interview with those that do not have suggested it was not a priority for them. The Master Trust Assurance Framework was seen as more important, given it has the backing of the regulator.

The PLSA has also recently launched the Retirement Quality Mark (RQM) aiming to provide consistent standards for post-retirement provision. While the Master Trusts interviewed were aware of the standard, few said that they would go through that process. Some went further and raised concerns around the appropriateness of the PLSA creating these standards rather than the FCA. While many saw the PLSA as being helpful in offering standards for this new area, there was a recognition that applying the PLSA standards would not protect Master Trusts from FCA regulatory action and could prevent useful innovation in this area if applied too commonly too soon.

Independent trustees can potentially offer greater resources and reduce key-man risk

by employing a team of directors, though this comes at an increased risk of “group-think” if they

are widely appointed across the market.

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‘We’re still keen to make sure that the charge cap doesn’t get brought down yet further’

– One Master Trust interviewee

content so employers can influence the design and potentially the quality of the investment content. The charges and services to members are therefore the main basis for competition in this sector. There is a wide range of charges that members may incur, with the cheapest end of the market starting at around 0.20% pa and the most expensive being just below the charge cap of 0.75%.

The availability of tailored investment approaches for employers means that there are a number of lifecycle investments used as a default for different member groups in the large employer segment of the Master Trust market. This research focusses on the main scheme default, which is offered by the Master Trust to employers who do not wish to influence the design. The investment content of the main default remains the same for each employee group, but the charges members pay varies between groups. Some Master Trusts have as much as 50% of the assets tailored to individual employers’ requests, though many are seeing employer interest in this feature reducing over time, particularly in the light of freedom and choice.

Master Trusts being forced to reduce charges as a result of the charge cap being introduced have not been encountered in the research, though there are some Master Trusts not surveyed which have closed to auto-enrolment business so may have charges in excess of the cap. Many assumed that NEST provided a benchmark for charges to members that it was impossible to exceed, and this created an effective cap by competition. What is clear is that numerous Master Trusts in this sector are charging exactly 0.75% pa or permitted combinations of other charges that are deemed to equate to this level. As most of these Master Trusts are independent, and therefore have no other sources of funding, a reduction of the cap, or an extension to the timetable of escalating auto-enrolment minimum contribution rates could be material to their business plans. They rely on the increasing contributions in auto-enrolment and a delay to this would reduce their revenue, potentially forcing closure and consolidation of schemes in this sector.

Value for memberstPR changed the term Value for Money to Value for Members from April 2016 to reflect the fact that the charges trustees should focus on are those paid by members. Trustee Reports and Accounts dated throughout the period covering the change in regulations were reviewed in the research, so use one term (VfM) to cover both Value for Money and Value for Members comments.

VfM is a required disclosure of the Chair’s Statement where Chairs of trustees must report on their view of the VfM of the trust and how they came to that conclusion. The non-investment services discussed in these VfM assessments have not been researched and so there is no basis for comparing the VfM of different Master Trusts. However, the brevity of the VfM statements and their lack of detail, in particular around the investment design, is striking. As Master Trusts have been through a VfM assessment process information from the VfM statements had been hoped to be included in the pages later in this report on each Master Trust, but the statements themselves were found to be uninformative. All Master Trust Chairs were satisfied that the members received an appropriate value from their charges.

Most VfM statements reference the pricing of the component funds and state that the cost of funds is competitive, and this does appear to be the case. However, few discuss whether different levels of spending on the investment proposition (e.g. incorporating more diversification or more active management) would increase VfM. No VfM statements discuss how spending level was decided; the link between VfM and past and future returns; or whether permitting the employer to tailor investment designs (which adds an implicit or explicit governance cost) increases VfM. While VfM is an evolving subject, more needs to be done to help trustees to review and publish consistent information.

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Standard investment propositionsPrincipal defaultsA number of other features of Master Trusts’ investment propositions will be described shortly. First the principal default funds designed by the Master Trust itself will be discussed as they carry the greatest proportion of the assets within the sector.

For the majority of Master Trusts targeting auto-enrolment business, there is only one possible investment default on offer. For those targeting large employers, however, employers may be able to design their own or select a different one from those designed by the Master Trust. The Master Trust’s own default is designed for employers who do not take this option. This default is therefore the proposition offered to those employers who do not wish to or cannot afford to tailor investments; potentially making it less of a priority than other competitive features such as overall member cost or efficiency of employer processing. As a result, the investment designs of principal defaults tend to be lower in cost and overall sophistication than investment designs offered to employers who rate investment higher.

Principal defaults rely heavily on equity exposure, with a number exclusively invested in this asset class for the purposes of growth. Most Master Trusts are concerned about equity volatility in investment returns, and attempt to reduce volatility by investing in a more diverse range of asset classes. As principal defaults are the lowest-cost

investment option, they are mainly invested in passive, market-capitalisation-weighted indices, even when more diversified. The rationale here was often presented as being around cost, but also doubt about the opportunities for skilled investors to add value through active management in highly developed markets. For instance this rationale was often used to exclude developed equities as offering an opportunity for active management. Where they are present, high yield, emerging market equity and debt are the only asset classes to be commonly managed actively.

Master Trusts discussed smart beta as presenting an opportunity to add value over market-capitalisation-weighted approaches, though only a small number of Master Trusts have incorporated any of these approaches into their principal default designs. Where they have done so, allocations to fundamental indexation or minimum volatility approaches are seen in equity investment, but no

Investment

The term principal default refers to the main default design of the Master Trust. This could be the only default offered or the default offered by Master Trusts where the employer does not influence the design. The principal default could sit within a range of other lifecycles, all using Master Trust designed investment building blocks and eligible for the employer to nominate as the default, or it could stand-alone, with the only alternative being for the employer to go through a full design process for its default. The mechanisms of employer tailoring are covered in more detail later in the report.

Figure 3. Investment strategies of principal default growth funds (age 45)

Fig 2. notes

1 Active includes smart beta2 Multi-asset funds are non-Master Trust originated DGFs3 Age 45 picked as a common age where principal default funds are invested in growth assets

100%40% 70%10% 90%30% 60%0%

Passive Equities Passive Bonds Passive Alternatives Passive Multi-asset Active Equities Active Bonds Active Alternatives Active Multi-asset

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‘Our preferred solution would be actively managed funds into a drawdown retirement’

– One Master Trust interviewee

other smart betas or other asset classes.Defaults in this sector are similarly designed,

investing in multi-asset blends of passive funds to achieve a very low investment cost. This permits a wide range of potential employers to use the principal default. There are a smaller number who have differentiated themselves on the basis of their investment design, employing a greater degree of active management, and charging a higher relative member fee as a result.

The Master Trusts with the highest proportions invested in active management held around one third its portfolio in actively managed funds. A number of Master Trusts create blends themselves, while some use off-the-shelf funds such as DGFs, delegating the asset allocation to these managers.

The dominance of passive management techniques within the principal default designs should be noted and will be a concern for anyone believing in the ability for active management to provide better risk-adjusted returns, particularly in times of market stress. The majority of Master Trusts only use passively managed funds in their defaults, in some cases only using passive equity funds with no asset class diversification whatsoever. The situation in self-select funds is different, with more active management available in most cases. The use of passive, smart beta and active management styles across fund ranges is covered in more detail later in this report.

Lifecycles, Lifestyles, Target Date FundsIn considering the investment propositions of Master Trusts, one area to explore in more detail are the terms “Lifecycle”, “Lifestyle” and “Target Date Fund” as these determine how the investments are managed over time for members and how funds are accessed within the design. These terms are a source of some confusion, but can be material in considering on the one hand the operational complexity of the administration and on the other the range of investment choice facilitated by the Master Trust.

Lifecycle – is a general term meaning that the investment proposition is differentiated by age of member, or by time to retirement. It owes its naming to Alberto Ando and Franco Modigliani and their Lifecycle hypothesis of human capital2, the theory being that by working and saving for retirement, individuals are consuming their human capital. Both lifestyles (lifestyling) and Target Date Funds (TDF) are implementations of

lifecycle investing, differing in the operational and delegation model.

Lifestyle – in a lifestyle implementation, a small number of separate static funds are created and the administrator invests members in these depending on their age or time to retirement depending on a lifestyle matrix. Changing the lifestyle matrix (eg changing the way the default transitions between the static funds) requires trustee decisions and an administration project; new lifestyles can be launched using the same components without having to launch new funds, reducing the cost of the investments. In addition, a member making a choice between lifestyles which differ only in the future lifestyle matrix (eg moving the point of de-risking from 10 years to 15 years into the future) does not require any buying or selling of funds.

Target Date Funds – in a TDF implementation, a large number of dynamic funds are created representing the year in which the member is expecting to retire, or a range of such years. The administrator only needs to allocate member contributions into the correct fund, determined by default or by member choice. The de-risking of the fund as a member approaches retirement is carried out within the fund by an investment manager under delegation or to meet the fund’s objectives. As the administrator only allocates contributions into funds and does not need to carry out any switching between them (i.e. for a default investor) TDFs reduce operational resource requirements for administrators to manage compared to lifestyling, particularly for large schemes with mature memberships or for complex lifestyling matrices. TDFs also benefit from the more hands-on role of the investment manager – when material changes to the profile of the risk-management part of the lifecycle change, as happened with freedom and choice, TDFs are freer to act more rapidly than Lifestyles.

Default lifecyclesThe majority of Master Trust principal defaults employ a lifecycle which invests in higher risk investments when far from retirement, de-risking as an individual approaches retirement age. There are two types of exception. The first are Master Trusts with no de-risking (Aon, L&G and National Pension Trust) where the principal default invests in a moderate level of risk throughout working life, and the assumption is that members will go into a drawdown fund and require a similar level of risk in

Notes2 The “Life Cycle” Hypothesis of Saving: Aggregate Implications and Tests, The American Economic Review Vol. 53, No. 1, Part 1 (Mar., 1963), pp. 55-84

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Figure 4. Number of non-default lifecycles offered

retirement. The other is NEST, which stands alone as having arranged a “foundation phase” of low risk investment for their youngest members, with the assumption being that investment losses for this group could put them off saving for the rest of their lives, a much worse outcome than foregone returns when pots are small. In the foundation phase investments increase in risk, and then look the same as traditional lifecycles.

Lifestyling is the dominant form of implementation of Lifecycles among Master Trusts, with around two thirds of Master Trusts using this approach. Master Trusts chose either to target a lump sum at retirement or a drawdown account with their principal defaults, with very few choosing to target annuities.

Asset allocationThree main ways that assets are allocated within the default components have been identified:• Stable – the intent of this approach is not to

be active in asset allocation. Instead, blends are reviewed on an annual basis with the expectation that changes will be minimal.

• Volatility controlled – this approach employs algorithms to maintain the apparent level of volatility in a fund, or to ensure that it does not exceed a certain level. In practice this means that as volatility of an asset class rises, that asset class is progressively sold and the proceeds invested in lower volatility asset classes.

• Active – this approach appoints a fund manager who responds to events to try to time changes in asset allocation in response to changes in perceived market opportunities.

While there are no hard and fast rules to differentiate between the stable and active approaches (the differences come down to how the process is described around factors of frequency and beliefs in the ability to add value by changing asset allocation), it can be noted that Master Trusts mainly adopt the stable and volatility controlled approaches. Very few describe the asset allocation process as active that they govern at the level of components, though some invest in DGFs or TDFs which employ some active asset allocation.

A further element of complexity is added by the rebalancing process carried out by the investment platform. While the platform carries out the rebalancing, the way that rebalancing works is in general controlled by the Master Trust, selecting from configurable options offered by the platform. Where there are significant net inflows, these

flows will be used to rebalance the component, and so differences between approaches may not be material. However, where funds do not receive significant contributions, the differences may be increasingly material.

Non-default lifecyclesWith the exception of NOW: Pensions, all Master Trusts offer some degree of choice to members within their standard investment propositions – the line-up of funds which has not been influenced by employers.

There are a number of types of choice that can be offered to members, and each Master Trust offers choices within different types of choice. In the pages on each Master Trust, the following reasons for member investment choices within the standard proposition are identified:• Risk – ranges of risk-graded growth funds or

lifecycles• Retirement objective – ranges of de-risking

funds or lifecycles aiming at different retirement routes

• Active v Passive – ranges of actively or passively managed funds or lifecycles

• Investment Budget – this includes the choice between active and passive approaches and diversification where adding to passive equity-only approaches adds cost.

• Ethics – ranges of ethical / shariah / ESG / sustainable funds to complement agnostic investment offerings.

• Asset allocation – ranges of stand-alone asset classes enabling members to become multi-asset managers, and presumably time markets to add value.

Asset allocation is the only type of investment choice that cannot be offered within a lifecycled environment, as by its nature it means offering members the ability to set and maintain asset allocations over time. All the other types of choice are offered as lifecycled options somewhere in the Master Trust universe. Most Master Trusts offer either risk level or retirement objective as lifecycled choices within their standard proposition. Notably, only NEST and The Pensions Trust (TPT) have ethics-driven lifecycled options, a sustainable lifecycle option.

While these choices also have the potential to be additive, meaning that combinations of types of choices could be created (e.g. combining risk level and retirement objective choices might result in a high-risk drawdown lifecycle), this approach

would create many potential lifecycle vehicles and is only practically available to Master Trusts built on Lifestyling technology. The Master Trust with the largest range of non-default lifecycles (Standard Life) has combined choices around risk, retirement option and investment budget to create a range of 36 lifecycles including the principal default.

The tables below outline the number of non-default lifecycles and the reasons for choice among the Master Trusts surveyed. The active v passive choice and investment budget choice have been merged in this table for the reasons discussed above.

There is a clear differentiation between the

numbers of lifecycle options offered in the auto-enrolment Master Trusts and those offered in the larger-employer Master Trusts. AE Master Trusts typically offer a smaller number of lifecycles, with two non-default options being the maximum encountered. All larger-employer Master Trusts offer more than one lifecycle, with the smallest number of options being two, and as mentioned above the largest being 35 (excluding the default lifecycle). The difference in approach may be a result of marketing to more sophisticated employee populations where employers expect higher numbers of members to make choice, or the result of a more sophisticated

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Retirement Risk Investment budget

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No No No No

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No No No Yes

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No No No No

Yes No Yes No

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Yes No No No

Yes No Yes No

Yes No No No

Yes Yes No No

Yes No No No

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governance process available due to greater scale, vertical and horizontal integration for larger-employer Master Trusts.

Self-selectThe final area to consider in standard investment propositions is self-select funds. All Master Trusts offer self-select funds, if only to provide an Ethical or Shariah investment alternative to the default fund. Again, Master Trusts focussing on larger employers offer more choice in their self-select ranges, with the highest number on offer in the AE sector 10 and the lowest on offer to large employers 12.

The chart below outlines the numbers of self-select options available for each Master Trust in the survey, and whether the options are passively or actively invested. The following funds were counted as being passively managed for the analysis:• Cash – although common to all but one self-

select range, cash and money market funds are not promoted as actively managed funds.

• Shariah – the HSBC Amanah fund is sometimes described as passive as it invests against an index, and sometimes as active as the index construction process is has non-algorithmic elements within it. No other Shariah funds have been invested in among the Master Trusts in the survey.

While a higher proportion of self-select funds are actively managed compared to default investments, there are still a number of Master Trusts who offer no actively managed fund options. Indeed, given the outline of choices provided earlier, this suggests that these Master Trusts are implicitly expecting members who want to make investment choices to carry out asset allocation as the major function of their self-select ranges (excluding expressing their ethical views). The numbers of members making self-select decisions have not been gathered, but interviews have anecdotally stated that few members are making this decision.

Figure 5. Number of non-default lifecycles offered

Self-select options Passive Active Percentage active

21 12 9 43%

27 17 10 37%

22 20 2 9%

25 11 14 56%

17 6 11 65%

16 9 7 44%

21 14 7 33%

14 9 5 36%

18 11 7 39%

12 9 3 25%

10 4 6 60%

2 2 - 0%

- - - N/A

8 6 2 25%

2 2 - 0%

2 2 - 0%

Bespoke investment designsAbility to tailor designsSome Master Trusts offer the ability for the employer to influence the design of the default and fund range their employee members have available to them. In general this creates an ongoing role for the employer in terms of reviewing the investment performance, which may be placed within a wider governance committee looking at other issues such as auto-enrolment compliance and communications. The mechanics of the advice taken for this are discussed below. In terms of investment proposition, there are three distinct types of tailoring by employers that Master Trusts permit:• No tailoring permitted – Master Trusts

targeting the auto-enrolment market would generally only have one investment line up (default, alternative lifecycle and self-select ranges) and not permit any tailoring of investment content by employers.

• Tailoring within pre-existing ranges – A number of Master Trusts with multiple lifecycle designs as a part of their standard proposition will allow employers to nominate another default from within their existing line-up of lifecycles. Also included here are Master Trusts that will construct a new default design using the same components as are used in the principal default or other standard lifecycles.

• Full tailoring – a number of Master Trusts permit the employer to fully design their own investment line-up including defaults, alternative lifecycles and self-select funds and the underlying funds that go into them. This is akin to having a single employer trust, but with the scale of the Master Trust reducing the governance requirements for non-investment matters. This position is in a minority, though this is dependent on the scale of the assets an employer brings.

All Master Trusts focussed on the auto-enrolment market ruled out employer bespoking. All larger employer Master Trusts commented that they would consider a bespoke approach for employers likely to bring sufficient assets to them to make it commercially feasible. This may not be a part of their standard proposition, but something they are willing to do for larger employers. This additional flexibility highlights the purchasing power that large employers have in this market.

The investment desgins chosen by employers in bespoking their investment line-ups were not surveyed, but the perceived reasons behind this

request and the mechanics of the advisory process were explored at interview. The reasons articulated for employers wishing to do this are either the paternalism and investment beliefs of the employer; wishing to enrich the investment designs compared to the “off-the-shelf” propositions; or to ease the consolidation process. Interviewees stated that the majority of situations where this occurs at present are to include active managers, and in particular DGFs, in the defaults where the principal default is seen as being lower-cost.

The consolidation argument is an interesting one to focus on. When moving members’ benefits from a trust without seeking members’ consent, the trustees must seek the advice of the scheme actuary as to whether members are no worse off in the new arrangement. While this legislation was intended for situations where defined benefits were moving, moving DC benefits also requires actuarial sign-off. Assessing whether members will be worse off in the new scheme is a complex assessment, requiring an understanding of the investment costs and risk of the new default, as well as the consistency of the member choices in the two arrangements. In many circumstances, scheme actuaries would find it difficult to certify that no member will be worse off, slowing the consolidation process. Several interviewees commented that the solution could be to match the investment line-up of the old scheme in the Master Trust, removing the issue as related to comparing investment designs. Whether benefits transferred in this way remain in the old designs, or whether a future review recommends that they are harmonised with existing designs (e.g. are switched into the principal default) will depend on the position taken by the Master Trust trustees and the degree of difference between their preferred designs (e.g. their standard line-up) and the tailored designs.

Investment advice concerning bespoke contentFor those Master Trusts who currently hold bespoke investment content, there are two advisory models in the market:• Employer-procured advice – the more common

approach is to ask the employer to appoint and retain an advisor who is directly able to provide regulated advice to the Master Trust trustees around the suitability of the design and funds. Under this model the trustees may receive advice from numerous different advisors regarding different employer-bespoked sections.

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‘We allow clients to bespoke, which means that they can bring in their own funds’

– One Master Trust interviewee

• Employer-procured proposal – the less common approach is for the employer to pay for the development of investment proposals and justifications for the trustees, but for them to take regulated advice from a single advisor concerning the suitability of the proposals.

Master Trust trustees bear the ultimate responsibility for the investments on offer to members. However, the two different models have different implications in the event that an employer becomes insolvent or moves current accrual to another vehicle leaving only deferred members in the Master Trust. In these cases, the trustees must consider whether, without ongoing support from the employer around the governance and costs of bespoking the investment designs, the better outcome for members is to remain in their bespoke arrangement or to be moved into the principal default. When the employer has not paid for the direct advice to the trustees (e.g. has procured a proposal), the main advisor will still be present and able to offer a view as to the suitability of the design on an ongoing basis. Where employers have paid for the trustee advice, the withdrawal of ongoing advice is more likely to trigger a change of investment strategy, and move members to the principal default or other standard proposition funds.

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‘It’s passive management if it’s a developed market, but for emerging markets we feel that stock picking can work’

– One Master Trust interviewee

Trends in investmentUse of active, smart beta and illiquid managementThe majority of Master Trusts have designed very low-cost standard propositions. Disclosures and interviews showed that the investment costs of many of these propositions are in the range of 4 – 20 bps. This leaves very little room for allocations to actively managed or illiquid assets, which can be perceived as being higher in price than passive components. A small number of Master Trusts have incorporated active management within their standard propositions, generally taking advantage of either vertical or horizontal integration opportunities to reduce the cost of active management. While many Master Trusts responded that use of active management was a possibility as they gained scale and presumed that they could bring down the cost of active management with more sizeable mandates, a number said that they had a belief that active management could not add value with the exception of particular asset classes, most commonly Emerging Market Equity, Debt and High Yield Bonds.

A slightly higher number of Master Trusts have used smart beta investment approaches in their designs and most Master Trusts believed that smart betas would be more likely to become a part of their approach in future than active management. All of the smart beta approaches in current designs are in the equity asset class, with fundamental indexation and low volatility approaches being employed. Master Trusts interested in smart betas professed that though they had heard of them, they would expect to go through a research phase to understand them better before deciding whether incorporating them.

Illiquid investments are essentially missing from investment designs, with two exceptions. Some Master Trusts have direct property allocations, though these generally include some allocations to REITs to manage liquidity, and some underlying DGFs or TDFs hold illiquid assets as a part of their strategy. A wide universe of illiquid investment opportunities (property, infrastructure, private equity) are absent from most investment designs. In particular, the absence of infrastructure investment is concerning. At the point that DB schemes start to de-risk and are unwilling to make long-term commitments to invest in infrastructure, the investment industry (and the UK) urgently needs DC pensions to replace these institutional commitments.

Master Trust comments divided into two on this issue. One side reiterated their belief that these

investments would not add value to member funds; the other commented that these were opportunities that would be looked at as they gained scale. Given the long-term investment horizon DC members have, particularly those enrolled into pensions for the first time, missing out on the long-term investment returns infrastructure offers feels like an unfortunate unintended consequence of the charge cap reforms, and essentially the level of sophistication provided by a start-up industry.

Freedom and choiceFreedom and choice was introduced in April 2015. It liberated retirees from being forced to purchase an annuity (or be able to demonstrate guaranteed retirement income of £20,000 per year) and enabled them to withdraw their pension pots through their retirement at a pace that suited them. This was a significant change. Master Trusts launched prior to freedom and choice had to make a number of pre-retirement changes to ensure that communications, investment designs and operations could treat members taking these choices appropriately and facilitate the new kinds of payments they had available to them. Indeed a number of employers who bespoked their pre-retirement solutions found freedom and choice to be a reason to go back to the Master Trust’s standard proposition. Employers were concerned that an involvement in post-retirement designs would take on more fiduciary risk than they were comfortable with.

This work has been the clear focus of Master Trusts to date with some Master Trusts, particularly in the auto-enrolment market still unable to offer the full freedoms (i.e. choices between Uncrystallised Fund Pension Lump Sum, UFPLS and Flexi-Access Drawdown, FAD) and a larger number not offering members a post-retirement service at all. Those Master Trusts who do offer a post-retirement service, only one Master Trust (LifeSight) has introduced a post-retirement lifecycle option, allowing members to de-risk their savings towards a later purchase of an annuity. Apart from this, all investment ranges are the same

“We have thought about introducing a sliver of active management … the problem is the charge cap makes it hard to give you a sufficiently large proportion in active management to really have a meaningful effect on your performance.”

– One Master Trust interviewee

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pre and post-retirement. Master Trusts commented that although they expected their post-retirement investment solutions to evolve in future, this hadn’t been an area of focus for them up to now. They were vague around what designs would be put in place and felt that narrowing down the range of options would be done partly by themselves in the design phase of a future project, and partly by their competitors launching products which gained clients and received regulatory approval where required.

Of particular interest is the availability of distribution units for investment. Distribution units permit unit holders to receive the income generated by the assets of the fund, rather than this being reinvested (known as accumulation units) and requiring unit holders to sell units to take income. To many private investors, distribution units are the logical way to remove the additional transaction costs incurred in this reinvestment / disinvestment process. However, the vast majority of Master Trusts post-retirement do not use distribution units, and require members to sell their accumulation units to take income from their pension pots.

At interview, Master Trusts highlighted that their member record-keeping systems were configured as pre-retirement solutions, and though the incorporation of distribution units into their designs would happen eventually, it was seen as a lower priority compared to the work they had to do to prepare communications and payment systems for freedom and choice. A small number of Master Trusts are able to use distribution units and have funds which convert from accumulation units to distribution on request, but these remain a small minority.

Freedom and choice also created a new market for Master Trusts, competing for the members of single employer trusts to be transferred at-retirement into Master Trusts to use their post-retirement services. This is done with member choice, so does not constitute a “default” or transfer without consent process, but nevertheless, the aim for the employer and the trustees of the single employer trust appears to be to make it as easy as possible to leave the scheme and into a sensible and well governed choice. Few single employer trusts have implemented this service, though a number are either at the implementation or selection phase of this process. The Master Trusts winning this business appear either to be aligned with the consultant discussing the process, or the insurance company offering services into the single employer trust (e.g. either the bundled administrator or

investment platform service provider). The sponsor of one Master Trust surveyed

(Bluesky) has set-up a separate post-retirement Master Trust, “The Crystal Pensions Trust”, specifically to take transfers from their pre-retirement Master Trust and other single employer trusts post-retirement.

The incorporation of post-retirement guarantees was discussed at interview, in theory bridging the gap between a pension saving pot and an annuity. A range of views as to the use and necessity for these guarantees were expressed, with some saying these would be a certainty eventually, a number saying they would watch how the market developed and some saying they did not expect the market ever to go in this direction. None have launched this option at present. Views on guarantees differed among the Master Trusts:

Transaction costsA major anticipated theme for the coming year is the increased requirement to disclose transaction costs members incur against a template yet to be published by the FCA / DWP. The Investment Association (IA) has been asked to formulate a disclosure template for investment managers to use, though the extent that this shapes the disclosures Master Trusts themselves make remains unclear.

“We’re looking at a variety of things at the moment, but guarantees are unlikely simply because of the sheer cost of them. We’re looking at how we can create a solution that generates a stable level of income without the need for guarantees.”

“Guarantees are something that we have thought about. Over the last year we saw an investment manager who is coming up with a guarantee. They were in seed stage, but as time goes by it is something that the trustees will be looking at.”

“Guarantees will increasingly start to come in. Nobody’s got deferred annuities properly priced yet but sooner or later they will.”

The uncertainty of not knowing the final format for disclosure has meant that many Master Trusts’ Chair’s Statements make high level comments around the actions they have taken to assess and manage levels of transaction costs without detailing the cost levels that have been incurred. Three Master Trusts in the survey did disclose figures around the level of transaction costs they believed members had incurred, but each has done this on a different basis (including and excluding different line items) reducing the comparability of the disclosures. The disclosures had been hoped to be included where available, but they present an incomplete representation of the transaction costs in the market.

The issue of reporting transaction costs, and the fear that the auto-enrolment review will require these costs to be included in the charge cap, has created strong views around volatility controlled asset allocation approaches. As these are algorithmic and in theory could trade to alter the asset allocation in the fund daily, they may incur significant transaction costs. For some Master Trusts, this had been a reason to avoid this approach when designing their propositions. Master Trusts who had incorporated this approach were aware of the issue, and commented that, if and when that path was taken by the regulations, they would expect to review whether a volatility-controlled approach was still feasible.

Including transaction costs within the charge cap would be of great concern, not least because it continues a narrative in the DC industry that cost is the only measure of value, as demonstrated by the low-cost investment solutions offered by most Master Trusts at present. The focus of cost-reduction at present has been on the investment proposition. While the relatively fixed costs of administration are understandable, there should be greater focus on the other elements of member borne deductions, rather than investment. The state of reporting the survey has uncovered also suggests it would not be feasible at this time to include transaction costs in the charge cap – the industry simply doesn’t know the size of this at present on a consistent basis. Further, inclusion of transaction costs would be a de facto reduction in the charge cap. This will reduce the perceived ability of active managers to add value for members of Master Trusts further. Given the low yields available in markets at present, it is to be hoped that Master Trusts will increasingly become aware of and use the value available in active management. Including transaction costs could delay this trend, potentially indefinitely.

Investment performance and transparencyWhile it was not included in the scope of questions we surveyed, the difficulty of getting and comparing the investment returns achieved by individual members of each Master Trust was striking. As there are no specific accounting regulations for Master Trusts, a number of disclosure approaches are taken for investment returns:• Reporting on the performance of the components

of defaults – this is most commonly followed by Master Trusts using Lifestyling.

• Reporting on the performance of vintages of defaults – this is most commonly followed by Master Trusts using TDFs.

• Reporting on the performance of the individual asset classes invested in within the trust, but not the blends created out of them and acting as the components for lifecycles.

These approaches are all consistent with the requirement to reconcile the total value of the trust at the beginning and the end of the reporting period, but are not helpful in understanding how well members of each Master Trust would have performed.

Coupled with this each Master Trust investment proposition allocates different levels of risk to members of different ages, assumes different at-retirement objectives and incorporates different approaches to de-risking members over time. While the variation of design is a welcome feature and provides choice for employers, it does reduce the comparability of investment returns between propositions. The range of disclosures were confusing and hard to compare even for professionals experienced in the DC market. Most employers will find them more confusing, creating a risk that Master Trusts will choose a framework to disclose investment performance which provides the best possible figures for their design. This risk could be reduced by providing a consistent reporting template to Master Trusts and requiring that they disclose sufficient information for third parties to compare their investment performance on a consistent basis.

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The investment community and Master Trusts share the same ultimate objective: to deliver the best possible outcomes for members

At present, the Master Trust market is still in its early stages of development. There are a range of investment-related issues which became apparent over the course of this research.

Investment is a low priorityA combination of the charge cap and the low priority of investments means that most Master Trusts are opting for a cheap and low governance approach. This concerns us as a group. There are a number of potential explanations. The first is that the buyers of Master Trusts – employers – are not very engaged with investment issues. Inevitably, sellers will gear their products to appeal to prospective buyers. With only a limited budget, Master Trusts are tending to focus their energy on areas which are most of interest to prospective buyers, such as communications.

The charge cap could also be pushing Master Trusts towards cheaper solutions which do not add as much value as their actively managed counterparts.

Finding the right investment solution takes time. Like the rest of the pensions industry, Master Trusts have been very busy coming to terms with regulatory changes, such as the introduction of freedom and choice.

We hope this situation will change as time passes. An effective investment strategy is fundamental to the success of a pension scheme and ultimately, better retirements for members.

Investment performance is not consistently measuredAt present, there is no single way to compare and contrast investment performance. This should be developed as a matter of urgency. Members deserve to be able to find out how their Master Trust is performing, and we expect demand for this reporting to inevitably grow as members’ assets grow, and they start to take more interest in where they are invested.

If the status quo continues, this lack of transparency and comparability will mean investment will remain a low priority. With the spotlight off investment performance, Master Trusts are unaware of whether they are offering a competitive proposition and crucially, their members cannot gauge whether they are receiving one.

We believe there should be a simple and consistent way of measuring performance to which all Master Trusts could adhere. For instance, Master Trusts could report on how a typical 25, 35, 45 and 55-year-old invested in the default fund has fared.

Value for money is two-dimensionalWhen considering value for money, most Master Trusts are focusing on cost, not value. As a result, this research demonstrates a lack of diversification and a proliferation of passive management. There is still a gap to the best of DB or other institutional designs, with a much lower allocation to active management in general, and a complete absence of specific asset classes such as infrastructure, private equity and hedge funds.

While some Master Trusts expressed a view that these asset classes would come into the proposition in time, a number rejected the premise that they were useful to returns and believed that they would always be passively invested. We fear for the returns individuals will get if a more diverse range of return opportunities are not included in designs, and would expect investment to become a more important competitive feature.

We hope to see greater clarity from the government and regulators regarding value for money. The current value for money disclosure requirements have enabled all Master Trusts to conclude that they offer value for money, despite the clear differences we have seen in the quality of their investment designs. We would hope that prospective investment returns and the suitability of risks taken for each group of members would feature more prominently in the disclosures required on value for money in future.

The investment community and Master Trusts share the same ultimate objective: to deliver the best possible outcomes for members. In the coming years, we are extremely keen to work with Master Trusts to further develop their investment offerings. As asset managers with years of experience in many different markets, we are passionate about helping tomorrow’s DC investors to meet their retirement goals. We hope to engage with Master Trusts – even those which are relatively small at present – to get their investment strategy right from the start.

As Master Trusts evolve and auto-enrolment matures, we hope that investment will take its rightful place, alongside contribution rates, at the centre stage.

Observations by the DCIF

3736

Jargon and acronyms Appendix 1: Master Trust Data

Accumulation units – units in an investment fund which reinvests the income generated by its holdings, rather than distributing it to investors.

AE – Auto-enrolment. The Pensions Act 2008 creates an obligation for all employers to enrol their staff (with certain age and salary exemptions) into a pension scheme and to make contributions to their savings.

AVC – Additional Voluntary Contributions – member contributions above the minimum level to join (for a DB scheme); or member contributions above the maximum level matched by employers (for a DC scheme). AVCs form an additional DC pot within a pension arrangement.

Bundled administration – a member record keeping service provided with an integrated investment platform. These are generally provided by insurance companies.

Contract-based – a type of pension arrangement where an insurance company directly contracts with the employee to hold the DC savings. This is organised by the employer on a group basis for its employees.

Distribution units – units in an investment fund which distributes the income generated by its holdings to investors, rather than reinvesting it.

DGF – Diversified Growth Fund. Comprising of a blend of asset classes, these multi-asset solutions have been increasing in popularity since the financial crises. There are a number of different types reflecting their approach to underlying asset classes, asset allocation and return targets.

EBC – Employee Benefit Consultant. An advisor covering the nature and value of pension benefits, alongside other employee benefits.

ESG – Environmental, Social and Governance. This is an investment principle which highlights the risk to asset values due to poor management of external impacts of the business, or poor governance of the business.

FAD – Flexi-Access Drawdown. When a member takes their full tax-free allowance from their pot at retirement (their PCLS) the remaining pot can be taken flexibly over time, this is their FAD. This is a member choice alongside UFPLS at retirement.

FCA – the Financial Conduct Authority. Regulator of insurance companies and professional advisors.

GPP – Group Personal Pension, the most common type of contract-based arrangement.

IGC – Independent Governance Committee. FCA rules compelled workplace pension providers (e.g. insurance companies) to set up IGCs from April 2015, with a role to review and report on the value for money that policyholders of pension products received.

IPT – Independent Pension Trustee – a person or a company acting as the trustee of a trust-based arrangement.

MAF – Master Trust Assurance Framework – designed jointly by the Pensions Regulator and the Institute of Chartered Accountants for England and Wales, the MAF is intended to demonstrate that Master Trusts have standards of governance and administration that meet the DC code and DC regulatory guidance.

Market-capitalisation index – an index constructed from all of the stocks on a particular market in weights reflecting the size of the company (or issuance) on the market.

PCLS – Pension Commencement Lump Sum. Members are entitled to at least 25% of the value of their DC accounts to be paid to them tax-free at retirement.

PLSA – The Pensions and Lifetime Savings Association, formerly the National Association of Pension Funds (NAPF).

PQM / PQM Ready – The Pensions Quality Mark, an initiative to provide standards in DC schemes by the PLSA.

REIT – Real Estate Investment Trust. A closed-ended vehicle investing in property and traded on open markets.

RQM – the Retirement Quality Mark, a parallel initiative by the PLSA to provide standards in drawdown arrangements.

Single employer trust – a trust-based scheme arranged by a single employer, or associated group of employers.

Smart beta / factor investing – an alternative to market-capitalisation indices, this involves creating an alternatively weighted index for investment at low cost but avoiding some of the issues with market-capitalisation investment. Common examples include fundamental indexation, low volatility, quality and momentum.

Trust-based – a type of pension arrangement where a trust contracts with the employer to hold the DC savings.

TDF – Target Date Fund. A lifecycle investment implementation where a member invests in a single fund reflecting the year in which they plan to retire. The asset allocation of the fund is changed over time by the investment manager.

TPA – Third Party Administrator. A member record keeping service without an integrated investment platform. These are generally provided by a consultants.

tPR – The Pensions Regulator. The regulator of trust-based pension provision, formally the regulator of the trustees of those schemes.

UFPLS – Uncrystallised Fund Pension Lump Sums. If a member chooses to use UFPLS, 25% of each payment they take is tax-free, regardless of any investment growth that has occurred post-retirement. This is a member choice alongside FAD at retirement.

Contents

Consultant-led Master Trusts 38 The Aon Master Trust 38 Atlas Master Trust 40 The Mercer Workplace Savings Master Trust 42 LifeSight 44 National Pension Trust 46

Insurance Company-led Master Trusts 48 The BlackRock Master Trust 48 The Fidelity Master Trust 50 Friends Life Master Trust 52 The Legal & General WorkSave Master Trust and RAS Master Trust 54 Standard Life DC Master Trust (SLDCMT) and StanPlan 56 The Zurich Master Trust 58

Independent Master Trusts 60 The BlueSky Pension Scheme and The Crystal Trust. 60 National Employee Savings Trust (NEST) 62 NOW: Pensions 64 The Pensions Trust 66 The People’s Pension 68 Smart Pension 70

3938

Appendix 1.

Use of active management and illiquid assets Yes, principal default uses active management in Initial Growth Phase, Progressive Growth Phase and Bond Phase Funds.

Use of external products (eg TDFs, DGFs) TDFs – six types (three at-retirement objectives and two levels of cost)

At-retirement objective Drawdown, though employer can select lump sum or annuity retirement objective.

Pre-retirement choices:

Number of non-default choices 5 TDFs, 21 Self-select

Number of lifestyles / target dated approaches 6 (including default)

Number of actively managed fund choices 9 (3 used in TDFs) Initial Growth Phase, Progressive Growth Phase, Bond Phase, Active Global Equity, Global Equity, Active UK Equity, Property & Infrastructure, Diversified Multi-Asset, Diversified Multi Strategy Bond Funds.

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Completely

Availability of post-retirement lifestyling No – though TDFs remain the vehicle post-retirement.

Governance:

Product, advised or delegated investment decision-making

HRMSL is the appointed investment manager of the Aon MasterTrust. Trustees take advice on the default objective and range of investment options offered to members.

Dynamism of asset allocation Within each of the component funds, able to be dynamic within the lifecycling.

How often is the default(s) reviewed? Triennial formal review, oversight quarterly.

The Aon Master Trust

Aon established The Aon Master Trust in 2015 as a DC-only proposition and is awaiting its first client-onboarding at the time of writing. The investment design is horizontally integrated across Aon’s bundled trust and contract-based businesses.

Number of DC members 2 active, 0 deferred

Number of employers 1

DC assets under management £0.0m

Annual DC contributions £0.0m

Master Trust Assurance Framework No

PQM Ready No

Default:

Total charge default level 20 – 70 bps

Asset allocation by age

Consultant-led Master Trusts

0

10

20

30

40

50

60

70

80

90

100

20 25 30 35 40 45 50 55 60 65 70 75 80 85

Allo

catio

ns (%

)

Age

Aon Managed Retirement Pathway FundsDrawdown or flexible retirement asset allocation strategy

Short Term Inflation Linked Fund Long Term Inflation Linked Fund Bond Phase Fund Progressive Growth Phase Fund Initial Growth Phase Fund

4140

Appendix 1.

Established in 2015 by Capita Employee Benefits, the Atlas Master Trust offers employers a fund to consolidate DC benefits.

Number of DC members 800 active, 0 deferred

Number of employers 4

DC assets under management £16.0m

Annual DC contributions £3.5m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level 0.20% - 0.50%

Asset allocation by age

0%  10%  20%  30%  40%  50%  60%  70%  80%  90%  100%  

43   41   39   37   35   33   31   29   27   25   23   21   19   17   15   13   11   9   7   5   3   1  

Proportion  in  fund  

Multi  Asset  Portfolio  2   Level  Annuity  Target  Flexible  Pre-­‐Retirement  

 

Multi  Asset  Portfolio  3  Cash  

Years to retirement

Atlas Master Trust

Use of active management and illiquid assets Active funds in self-select, with smaller allocations in default components. Volatility controlling asset allocation. No illiquid assets.

Use of external products (eg TDFs, DGFs) External DGF forms a component of default, blended with passive single asset classes.

At-retirement objective Mixed objectives.

Pre-retirement choices:

Number of non-default choices 2 Lifestyles, 27 Self select

Number of lifestyles / target dated approaches Three including the default.

Number of actively managed fund choices 10 self-select: Multi-Asset Portfolio 1; Multi-Asset Portfolio 2; Multi-Asset Absolute Return; Multi Asset; Emerging Markets Equities; Corporate Bond; Flexible Access Retirement; Retirement income Drawdown; Ethical, Shariah Compliant

Purpose of offering choice (eg retirement, risk, asset allocation)

Risk (Lifestyle and Self-select)Retirement objective (Self-select)Asset Allocation (Self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Same choices after retirement.

Availability of post-retirement lifestyling No

Governance:

Product, advised or delegated investment decision-making

Advised

Dynamism of asset allocation Volatility controlled asset allocation process.

How often is the default(s) reviewed? Triennial, quarterly oversight.

4342

Appendix 1.

Sponsored by Mercer, the Master Trust was set up in 2014 and invests in the products offered by Mercer in its Workplace pensions solutions covering bundled single employer trusts, GPPs and Master Trust.

Number of DC members 21,500 actives, 12,500 deferreds

Number of employers 19

DC assets under management £1,140m

Annual DC contributions £45m

Master Trust Assurance Framework Yes

PQM Ready No

Default:

Total charge default level 30 - 70

Asset allocation by age

The Mercer Workplace Savings Master Trust

Use of active management and illiquid assets Underlying components are mostly passive, but includes active Absolute Return Fixed Income and Corporate Bonds and Smart beta low volatility equity.

Use of external products (eg TDFs, DGFs) Allocation includes the Mercer DGF.

At-retirement objective Drawdown

Pre-retirement choices:

Number of non-default choices 27 - 2 TDFs, 4 Risk profiled funds, 21 Self-select funds

Number of lifestyles / target dated approaches 3 TDFs, focussing on each retirement objective

Number of actively managed fund choices UK Equity, Active Global Small Cap Equity, Active UK Property, Active Global Equity, Active EM Equity, Absolute Return Fixed Income, EM Debt

Purpose of offering choice (eg retirement, risk, asset allocation)

Retirement Objective (Lifecycle and Self-select) Risk (Self-select) Active vs Passive (Self-select) Asset Allocation (Self-select) Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Risk profiled fund range differs from pre-retirement, though other pre-retirement choices are available.

Availability of post-retirement lifestyling No

Governance:

Product, advised or delegated investment decision-making

Product across the Mercer DC client-base; trustees advised by Mercer.

Dynamism of asset allocation Dynamic asset allocation process.

How often is the default(s) reviewed? Triennial formal review with quarterly oversight.

4544

Appendix 1.

Established in 2015 by Willis Towers Watson, LifeSight offers large employers a consolidation and post-retirement solution.

Number of DC members 16

Number of employers 2

DC assets under management £5m

Annual DC contributions £5m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level 0.20 – 0.50% pa

Asset allocation by age

LifeSight

Use of active management and illiquid assets None – smart beta employed in Lifestyles and self-select.

Use of external products (eg TDFs, DGFs) None – lifestyle uses blends of single asset class funds.

At-retirement objective Drawdown

Pre-retirement choices:

Number of non-default choices 9 Lifestyles, 22 Self-select

Number of lifestyles / target dated approaches 9 Lifestyles – 3 retirement objectives, 3 risk levels

Number of actively managed fund choices Smart Beta and Property

Purpose of offering choice (eg retirement, risk, asset allocation)

Retirement objective (Lifestyle and self-select) Risk (Lifestyle) Asset allocation (Self-select) Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Same fund choices apply.

Availability of post-retirement lifestyling Yes, a 5-year glidepath to annuity purchase available.

Governance:

Product, advised or delegated investment decision-making

Mainly advised. Delegated services are employed for LifeSight Equity and LifeSight Diversified.

Dynamism of asset allocation Stable – strategic asset allocation is periodically reviewed. No dynamic or tactical asset allocation.

How often is the default(s) reviewed? Triennial formal review, oversight quarterly.

4746

Appendix 1.

National Pension Trust was formed in 2009 by Xafinity Consulting as a DC-only savings vehicle for non-associated employers.

Number of DC members 16,500 actives, 6,500 deferreds

Number of employers 90

DC assets under management £203m

Annual DC contributions £33m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level 0.11bps for the investment funds, admin charge variable by employer.

Asset allocation by age

National Pension Trust

Use of active management and illiquid assets Only in the self-select fund range.

Use of external products (eg TDFs, DGFs) With the exception of the multi-asset self select option, all funds are combinations of single-asset class index funds or external managers.

At-retirement objective Flexi-access drawdown.

Pre-retirement choices:

Number of non-default choices 12 lifestyles (four levels of growth risk and three retirement targets) 17 self-select funds.

Number of lifestyles / target dated approaches 12

Number of actively managed fund choices Multi-asset, Property, Ethical, Global Equity Unconstrained, UK Equity High Alpha.

Purpose of offering choice (eg retirement, risk, asset allocation)

Risk (Lifecycle and Self-select)Retirement objective (Lifecycle and Self-select)Asset Allocation (Self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes, also open for transfers at retirement.

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

The self-select range is consistent.

Availability of post-retirement lifestyling No lifecycles post-retirement.

Governance:

Product, advised or delegated investment decision-making

Advised by Xafinity.

Dynamism of asset allocation Stable

How often is the default(s) reviewed? Triennial formal review, quarterly oversight.

The Default Investment Option is the Balanced Growth Strategy Composite Benchmark:

35.00% FT All Share (Excl FTSE 100 & Inv Trusts)

11.70% FTSE All World USA Index

11.70% FTSE All World Europe ex UK

10.00% FTSE British Government Index-Linked over 15 years - Nov 98 (GBP)

10.00% FTA Inflation-Linked Gilt Over 5 Year Index

10.00% iBoxx Stg NON-GILTS ExBBB15+ Y - Nov 00 (GBP)

5.80% FTSE All-World Japan Index

5.80% FTSE All World Asia - Pacific ex Japan

4948

Appendix 1.

The BlackRock Master Trust was established in 2012 and was acquired by Aegon in 2016 along with the administration and investment platform businesses that support the Master Trust.

Number of DC members 31,986 active, 15,192 deferred

Number of employers 13

DC assets under management £380m

Annual DC contributions £55.3m

Master Trust Assurance Framework No (expected by end of 2016)

PQM Ready No

Default:

Total charge default level 0.21% - 0.51% AMC

Asset allocation by age

The BlackRock Master Trust

Insurance Company-led Master Trusts

Use of active management and illiquid assets Active asset allocation in the default, active management choices in self-select.

Use of external products (eg TDFs, DGFs) Three TDFs managed by BlackRock.

At-retirement objective Drawdown

Pre-retirement choices:

Number of non-default choices Two TDFs, 16 self-select

Number of lifestyles / target dated approaches One default, two alternative lifecycles.

Number of actively managed fund choices 7 - Property, Diversified Growth, Risk-parity (ALMA), Income Portfolio, Corporate Bonds, Cash, Pre-retirement.

Purpose of offering choice (eg retirement, risk, asset allocation)

Retirement objective (TDFs) Asset allocation (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Same funds available post-retirement.

Availability of post-retirement lifestyling None

Governance:

Product, advised or delegated investment decision-making

Product / delegated to BlackRock through TDF. Advised around strategic use and self-select range.

Dynamism of asset allocation Active asset allocation within TDF.

How often is the default(s) reviewed? Triennial formal review, quarterly oversight.

5150

Appendix 1.

The Fidelity Master Trust

Launched by Fidelity in 2013, the Fidelity Master Trust offers employers a bespoke investment solution. While there is a standard default fund available, there is not a standard range of self-select within the Master Trust. Employers select their own ranges and commonly bespoke the default fund.

Number of DC members 11,400 active, 8,500 deferred

Number of employers 6

DC assets under management £818.5m

Annual DC contributions £77.9m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level 35 – 60bps

Asset allocation by age

0%  

10%  

20%  

30%  

40%  

50%  

60%  

70%  

80%  

90%  

100%  

≤55   56   57   58   59   60   61   62   63   64   65  Age  

Fidelity  Diversi9ied  Markets  Fund   Fidelity  UK  Aggregate  Bond  Fund   Fidelity  Cash  Fund  

Use of active management and illiquid assets High yield, Emerging Market Debt and an equity Income strategy are active asset classes.

Use of external products (eg TDFs, DGFs) Fidelity Diversified Markets Fund is used within the default.

At-retirement objective Flexible

Pre-retirement choices:

Number of non-default choices No standard self-select offering.

Number of lifestyles / target dated approaches No standard self-select offering.

Number of actively managed fund choices No standard self-select offering.

Purpose of offering choice (eg retirement, risk, asset allocation)

Active vs Passive (Self-select)Asset Allocation (Self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Consistent

Availability of post-retirement lifestyling No

Governance:

Product, advised or delegated investment decision-making

Product designed by Fidelity, external advisor to Trustees.

Dynamism of asset allocation The model monitors 12 month rolling volatility on a daily basis and indicates the appropriate asset allocation to keep within the target volatility range. Rebalancing is generally monthly but the manager may trade ad-hoc.

How often is the default(s) reviewed? Triennial formal review, quarterly oversight. In addition at fund level additional scrutiny and compliance oversight is maintained on an ongoing basis.

5352

Appendix 1.

Friends Life Master Trust

Established in 2014, the Friends Life Master Trust uses the same investment proposition as the GPP and bundled trusts across the Friends Life business.

Number of DC members 3,633 active; 180 deferre

Number of employers 25

DC assets under management £17.2m

Annual DC contributions £1.7m

Master trust Assurance Framework No

PQM ready No

Default

Total charge default level 0.20% - 0.70%

Asset allocation by age

Use of active management and illiquid assets In default only High Yield bonds are active, a number of active self-select funds.

Use of external products (eg TDFs, DGFs) Only in self-select – default components are blends of single asset class funds.

At-retirement objective Mixed objectives.

Pre-retirement choices

Number of non-default choices 7 Lifestyles and 21 Self-select

Number of lifestyles / target dated approaches 8 including default (4 retirement objectives, 2 cost levels).

Number of actively managed fund choices Aviva Investors Multi-Strategy Target Return, Baillie Gifford International equity, Baillie Giffor UK Equity, Invesco corporate bond, JM Life All-Emerging Market Equity, M&G Feeder of Property, MFS Meridian Global Equity, Schroder Life Intermediated Diversified Growth.

Purpose of offering choice (eg retirement, risk, asset allocation)

Retirement objective (Lifestyle and Self-select)Cost level (Lifestyle)Asset allocation (Self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Only for UFPLS at present. FAD functionality expected in late 2016/early 2017.

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Same fund range used.

Availability of post-retirement lifestyling No.

Governance:

Product, advised or delegated investment decision-making

Advised.

Dynamism of asset allocation Stable, but with algorithmic volatility control.

How often is the default(s) reviewed? Triennial formal review, or in response to regulatory change. Quarterly oversight.

5554

Appendix 1.

The Legal & General WorkSave Master Trust and RAS Master Trust

Legal & General have established two sister Master Trusts, one offering a “Net Pay” contribution structure and the other offering “Relief at Source” contributions. Both have common Trustees and investment designs and were established in 2011. L & G manage “Sole governance” fund ranges which are available to all employers. Employers may create bespoke fund ranges as “Shared governance” if they appoint their own advisor.

Number of DC members 473,500 active, 66,700 deferred

Number of employers 57

DC assets under management £2,048.2m

Annual DC contributions £451.5m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level Varies depending on employer, no scheme charged more than 0.5% pa in Sole governance, up to 0.75% pa in Shared governance.

Asset allocation by age No Lifestyling used in the default

Use of active management and illiquid assets None in the default. A property fund is available as self-select which is direct property.

Use of external products (eg TDFs, DGFs) DGFs available in the Shared governance range at employer’s request.

At-retirement objective A mix of objectives – members must engage to set a specific retirement objective.

Pre-retirement choices:

Number of non-default choices 17

Number of lifestyles / target dated approaches 3 – aiming to each potential retirement outcome.

Number of actively managed fund choices 5 – Henderson Preference and Bond, Investec Cautious Managed, L&G Property, Neptune Balanced and Threadneedle Global Equity.

Purpose of offering choice (eg retirement, risk, asset allocation)

Retirement objective (Lifestyle and Self-select)Asset allocation (Self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Yes. Members can stay in the same fund (MAF) until they start taking benefits, then switch into an income paying equivalent (RIMA).

Availability of post-retirement lifestyling No

Governance:

Product, advised or delegated investment decision-making

Advised

Dynamism of asset allocation Static, limited annual revisions.

How often is the default(s) reviewed? Triennial or with substantial changes (eg Freedom and Choice).

5756

Appendix 1.

Standard Life DC Master Trust (SLDCMT) and StanPlan

Standard Life has offered workplace pension master trusts since 1974. Their first Master Trust was StanPlan and closed to new business in 2012. The SLDCMT was founded in 2012 to offer an improved service and focus on large employers. The investment proposition is consistent across both Master Trusts and the GPP and bundled trust businesses.

Number of DC members 113,200 active, 66,100 deferred

Number of employers 1,192

DC assets under management £3,110m

Annual DC contributions £246m

Master Trust Assurance Framework Yes (both SLDCMT & StanPlan)

PQM Ready No

Default:

Total charge default level Varies depending on employer characteristics and choice of defaults. The range is from 0.28%pa to 0.67% pa.

Asset allocation by age

Use of active management and illiquid assets Active management within the Active Plus range. Access to property as an illiquid asset.

Use of external products (eg TDFs, DGFs) Multi-asset funds from SLI accessed within the structure.

At-retirement objective Mix of objectives.

Pre-retirement choices:

Number of non-default choices 35 Lifestyles, 18 self-select

Number of lifestyles / target dated approaches 36 – two levels of cost; five levels of risk; four at-retirement objectives (some combinations excluded).

Number of actively managed fund choices 18 Lifestyles contain active elements. 7 Self Select: UK Equity, Overseas Equity, Gilt, EM Equity, Corporate Bond, Property, Global Absolute Return Strategies.

Purpose of offering choice (eg retirement, risk, asset allocation)

Investment budget (Lifestyle)Risk (Lifestyle)Retirement objective (Lifestyle and self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement No – though Standard Life will facilitate a transfer into a post-retirement personal pension with consistent investment choices, should you wish.

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

[In personal pension] yes, though many members will make a separate choice at retirement.

Availability of post-retirement lifestyling [In personal pension] no.

Governance:

Product, advised or delegated investment decision-making

Product – investment range is consistent across GPP, bundled trust and master trust range. Note that Master Trust and bundled trust products operate within restricted fund ranges set by the scheme trustees. The trustees have access to the fully DC Pensions Fund Platform.

Dynamism of asset allocation Stable – member fund contains a dynamic multi asset fund.

How often is the default(s) reviewed? Formally every three years but also in response to regulatory change, such as freedom and choice.

5958

Appendix 1.

The Zurich Master Trust

Launched in 2013 the Zurich Master Trust offers a range of flexible solutions, either ‘off the shelf’ or tailor made to cater for clients who want a completely Zurich managed solution. It is an online proposition, offering employees access to financial planning tools, easy to read guidance and useful information about retirement options.

Number of DC members 4,100 active, 3,800 deferred

Number of employers 2

DC assets under management £104.7m

Annual DC contributions £5.1m

Master Trust Assurance Framework Accreditation being sought for Q4 2016

PQM Ready No

Default:

Total charge default level Will depend on nature of scheme and whether Passive or Dynamic Default is selected. Typically will be in range between 0.3% and 0.6%

Asset allocation by age

0%  

50%  

100%  

6   5   4   3   2   1   0  

Zurich  Mixed  Investments  Fund   Zurich  Flexible  Re>rement  Fund  Zurich  Dynamic  Annuity  Purchase  Fund   Zurich  Money  Market  Fund  

Dynamic Interim Lifestyle – Dynamic Default

Passive Interim Lifestyle – Passive Default

Use of active management and illiquid assets Dynamic Default and Lifestyles incorporate funds that have dynamic exposure to a diversified range of assets. No illiquid assets.

Use of external products (eg TDFs, DGFs) DGFs within Dynamic Lifecycles.

At-retirement objective Mixed objectives.

Pre-retirement choices:

Number of non-default choices Up to 7 Lifecycles, Core range of self-select fund (currently up to 12). Employer is able to establish own Individual section of MT and choose alternative lifestyles and self select funds.

Number of lifestyles / target dated approaches 8 in total (4 retirement objectives, 2 management styles) within Standard Section. Employer is able to establish own Individual section of MT and choose alternative lifestyles and self select funds.

Number of actively managed fund choices Standard Section of the Master Trust include the following 3 Funds that have a degree of active fund management - Mixed Investments, Flexible Retirement, Dynamic Annuity Purchase.

Purpose of offering choice (eg retirement, risk, asset allocation)

Retirement objective (Lifestyle and Self-select)Active vs Passive (Lifestyle and Self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Yes - post-retirement funds are incorporated within some of the lifestyle options.

Availability of post-retirement lifestyling No - but risk-based disinvestment strategy adopted with Default Drawdown option.

Governance:

Product, advised or delegated investment decision-making

Trustees receive investment advice from Investment Adviser. Investment proposition is consistent across Zurich range.

Dynamism of asset allocation Asset allocation reviewed on a quarterly basis. Glidepaths reviewed annually. Where changes are proposed to Glidepaths, they will be implemented for new and existing customers.

How often is the default(s) reviewed? Lifecycle solutions are reviewed annually and any changes recommended to the trustees. Changes will be implemented for new and existing customers.

6160

Appendix 1.

The BlueSky Pension Scheme and The Crystal Trust

The BlueSky Pension Scheme was established in 1988 by the Joint Industry Board (JIB). It was only open to employees of JIB registered or ECA member companies until 2012 when it opened to all companies. It only holds DC benefits. The Crystal Trust was established in 2015 to act as a post-retirement Trust, in particular for BlueSky Pension Scheme members.

Number of DC members 10,300 active, 18,800 deferred

Number of employers 1,000

DC assets under management £326m

Annual DC contributions £11m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level 0.61% (0.31% investment, 0.30% administration)

Asset allocation by age

Independent Master Trusts

Use of active management and illiquid assets None

Use of external products (eg TDFs, DGFs) TDF provided by AllianceBernstein.

At-retirement objective Mixed objectives.

Pre-retirement choices:

Number of non-default choices 10

Number of lifestyles / target dated approaches 0 (default only)

Number of actively managed fund choices 8: Bonds, UK Equity, Global Equity, Emerging Market Equity, UK Small Cap Equity, Property, Shariah, Cash

Purpose of offering choice (eg retirement, risk, asset allocation)

Asset allocation (Self-select)Active vs Passive (Self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Not within The Bluesky Pension Scheme. Members can transfer at retirement into the Crystal Trust for drawdown.

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Members can invest in the same TDF in both the Bluesky Pension Scheme and the Crystal Trust.

Availability of post-retirement lifestyling Intention is that the TDF (Alliance Bernstein) applies post retirement in the Crystal Trust.

Governance:

Product, advised or delegated investment decision-making

Delegated within the TDF, overall objective of CPI + 3%.

How often is the default(s) reviewed? Annual review and investment triennial tender.

6362

Appendix 1.

National Employee Savings Trust (NEST)

Established by the government in 2011, NEST has a public service obligation to provide a scheme for any employer seeking to discharge their auto-enrolment responsibilities. The NEST Pension Scheme is managed by the NEST Corporation.

Number of DC members 3.6 million members

Number of employers 185,000 employers

DC assets under management £ 1,191.7m

Annual DC contributions £419.2m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level 1.8% contribution charge, 0.3% pa management charge on assets. Equivalent to 0.5% pa under DWP rules.

Transaction cost assessment Transaction costs for the default funds are between 0 and 8.3 bps and costs for other fund choices are between 0 and 9.8 bps.

Asset allocation by age

Use of active management and illiquid assets Direct property fund is used – stated that NEST will move from pooled investments to segregated as scale builds.

Use of external products (eg TDFs, DGFs) All funds are externally managed, but in single asset class strategies. Multi-asset blends are created by NEST from these strategies.

At-retirement objective Lump Sum until 2021, then mixed objectives.

Pre-retirement choices:

Number of non-default choices Five

Number of lifestyles / target dated approaches Two – the NEST Ethical fund and the High-risk growth are both lifecycled towards retirement.

Number of actively managed fund choices NEST Higher Risk, NEST Lower Growth, NEST Pre-Retirement, NEST Ethical funds

Purpose of offering choice (eg retirement, risk, asset allocation)

Risk (Lifecycles and Self-select) Ethics (Lifecycles and Self-select)Retirement objective (self-Select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Members can take multiple withdrawals, but no post-retirement functionality.

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

N/A

Availability of post-retirement lifestyling N/A

Governance:

Product, advised or delegated investment decision-making

Investment decisions advised externally, though in-house team delegated asset allocation and prepares research / procurement of managers.

Dynamism of asset allocation Dynamic asset allocation within a risk budget – in-house team able to change allocations due to market conditions.

How often is the default(s) reviewed? Formal review triennially, oversight quarterly.

6564

Appendix 1.

NOW: Pensions

The BlackRock Master Trust was established in 2012 and was acquired by Aegon in 2016 along with the administration and investment platform businesses that support the Master Trust.

Number of DC members 736,400 active, 282,200 deferred

Number of employers > 20,000

DC assets under management £204.1m

Annual DC contributions £144.1m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level 0.30% pa

Asset allocation by age

Use of active management and illiquid assets Active asset allocation overlay with Passively managed funds and derivatives underlying. No illiquid assets at present.

Use of external products (eg TDFs, DGFs) None

At-retirement objective Lump sum

Pre-retirement choices:

Number of non-default choices None

Number of lifestyles / target dated approaches Default fund only which is lifestyled.

Number of actively managed fund choices None

Purpose of offering choice (eg retirement, risk, asset allocation)

No choice offered.

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes, drawing cash.

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

No choice in either context.

Availability of post-retirement lifestyling N/A

Governance:

Product, advised or delegated investment decision-making

Advised, investment is delegated to NOW: Pensions investments (Denmark).

Dynamism of asset allocation Asset allocation has a dynamic overlay executed in (long / short) futures.

How often is the default(s) reviewed? Six monthly performance reviews, triennial strategy reviews. Active asset allocation decisions taken when needed.

6766

Appendix 1.

The Pensions Trust

Established in 1946 by the National Council it provides a solution for Charity and for Voluntary Organisations employees’ not eligible for public sector pensions. It contains a mixture of DB and DC sections. The main DC section, the Flexible Retirement Plan (FRP), was launched in 2006.

Number of DC members 105,000 active, 13,000 deferred

Number of employers 4,544

DC assets under management £518.0m

Annual DC contributions £139.7m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level 0.49% pa to 0.52% pa depending on time to retirement.

Asset allocation by age

Use of active management and illiquid assets The default is invested in a TDF managed by AllianceBernstein.

Use of external products (eg TDFs, DGFs) Asset allocation is actively managed and invested through predominantly passive funds.

At-retirement objective Mixed objectives.

Pre-retirement choices:

Number of non-default choices One Lifecycle, eight self-select funds.

Number of lifestyles / target dated approaches One additional TDF invested ethically.

Number of actively managed fund choices Two self-select funds: DGF, Property.

Purpose of offering choice (eg retirement, risk, asset allocation)

Unethical vs Ethical (Lifecycled) Asset Allocation.

Post-retirement choice:

Ability to continue in the scheme post-retirement No – expected for 2017.

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

N/A

Availability of post-retirement lifestyling N/A

Governance:

Product, advised or delegated investment decision-making

Investment advisor (Mercer) advises trustees on fund range and overall governance. Alliance Bernstein are discretionary fund manager in the TDF used for the default.

Dynamism of asset allocation AllianceBernstein has the ability to act quickly to alter asset allocation to meet the investment objectives.

How often is the default(s) reviewed? Investment Committee carries out an annual review.

6968

Appendix 1.

The People’s Pension

Established in 2011 by the Builders and Civil Engineers (B&CE) to help employers comply with their automatic enrolment duties. The People’s Pension is a part of a range of financial services B&CE offer employers in the construction industry on a not-for-profit basis.

Number of DC members 1,163,100 active 809,200 deferred

Number of employers 17,218

DC assets under management £958.3m

Annual DC contributions £435.2m

Master Trust Assurance Framework Yes

PQM Ready Yes

Default:

Total charge default level 0.50% pa AMC

Asset allocation by age

Must do communicationsYour payroll provider may also offer this service, you can suppress their communications in order to follow The People’s Pension journey.

StagingThis notice is compulsory and is one of your automatic enrolment duties set by The Pensions Regulator. The information in this letter/email must be provided to your employees no longer than six weeks after your staging date. We have put together a sample that you can personalise. Click here

At enrolment We will send out the new joiner information to your employees. You must ensure you provide the correct employee contact details when you submit your employee data to enable us to send the joiner information out.

Ongoing communications We will send annual statements to all members’ online accounts, giving them a summary of their pension and a projection of what they may get at retirement. They can also access their pension information through their online account (once activated) at any time.

Optional communicationsThese communications are optional and you may find them useful before your organisation’s staging date:

Automatic enrolment animationThis animation can be used to educate your employees about automatic enrolment and how it will affect them. This may help to answer any questions they may have. Click here

PostersThere are four posters, which are editable pdfs that can be printed and put up around your organisation to let your employees know that The People’s Pension is your chosen provider and automatic enrolment is coming. Click here

Payslip wordingOur document contains a series of short explanations that fit onto payslips and give information about automatic enrolment. Click here

Generic payslip communications

Raising awareness about auto-enrolment

amongst your staff

For people, not profit

Employee CommunicationsThis information sheet tells employers what you NEED to communicate plus a list of optional communications we have prepared to help circulate the coming changes to pensions around your organisation. Most items are in the document library online. You may also find the glossary useful. Click here

Pre-prepared and available for you Effective communication is vital in keeping your employees informed about automatic enrolment and the effect it will have on them. It will help to save you time in answering queries they may have.

One of your employer duties is to tell your employees about automatic enrolment and how it will

affect them. This information needs to be sent by email and needs to go to all your employees,

other than those already in a qualifying pension scheme.

To make things easier for you, we’ve created a template that you can use to send to your employees. It’s just a template, so if you

choose to use it, you’ll need to add in the details that are specific to your employees – like the date you’ll be automatically enrolling your

employees and your contact details.

You don’t have to use our template and, if you prefer, you can draft your own or you can create a notice via The Pensions Regulator’s

letter template tool. This can be accessed at: www.thepensionsregulator.gov.uk/employers/letter-templates-for-employers.aspx

Whichever you choose, it’s your responsibility to make sure you include the correct information and dates, and the notice is sent to the

right people. Our template can be used at your staging date and in the future, e.g. for new employees joining your company.

Our template contains all the information which you must tell your employees once you have added the additional information. There

are two versions. One if you’re postponing automatic enrolment and another version if you’re not postponing. So you should make sure

that you use the right version.

We have created an example of each letter for a fictitious company, ABC Ltd, to show you how they’ll look. Our examples use 2015/16

tax year figures. In our examples, it assumes that their employees will receive their joiner information by email as this is required of our

scheme. They’ve also decided that they will not pay employer contributions for their employees who earn £5,824 or less.

Employees who are automatically enrolled must be given further information, including how to ask to leave, once they’re enrolled. We’ll

send that information, on your behalf, to those who join The People’s Pension in their information pack.

You may have employees who are already in a qualifying pension scheme. If they are remaining in their existing qualifying pension

scheme, and so will not be affected by automatic enrolment, then they should be excluded from this mailing. Different information can

be given to those members. This can be found at: www.thepensionsregulator.gov.uk/employers/letter-templates-for-employers.aspx

If you’d like to use our template, please check the decision tree on the next page first.

Helping you write to

your employees about

automatic enrolment

provided by B&CE

For more information please contact:

nbsupport@bandce.co.uk 01293 586637

www.thepeoplespension.co.uk

1253

/0314

Please keep this letter safe

Dear Mr SampleYou’re in! You should have received information about the changes to workplace pensions. In short, the

Government now requires all employers to enrol certain employees into a workplace pension scheme

to help them save for their retirement. This is called ‘automatic enrolment’.

Your employer, Sample Employer, has chosen The People’s Pension (provided by B&CE) as your

workplace pension scheme.

You have been assessed to see whether you are eligible for automatic enrolment and we can

confirm that you are. This means as of 29 March 2014 you are enrolled into The People’s Pension.

Now the hard bit is done and you are a member … what next?

1. Go online and activate your account

Go to https://myproducts.bandce.co.uk and click on ‘Activate your account’ then follow the

instructions online. Your personal activation code is *********.

Each year your statement will be sent to your online account, you can use your online account to

change where your contributions are invested, your selected retirement age and much more.

2. Read the enclosed booklet

This will help you to get the most out of your pension.

3. Learn how much it will cost you

By staying in The People’s Pension, the following minimum contributions will be made to your

pension every week:Contributions %

Your employer will pay in: 1.00% of Qualifying Earnings

From your wages, you will pay in: 1.00% of Qualifying Earnings

continued...

Customer No: 9999999

Our Ref: 93269a/0314

Email: info@bandce.co.uk

Web: www.thepeoplespension.co.uk

Telephone No: 0300 2000 444

Opt out No: 0300 330 1280

02/04/2014

Mr AB Sample1 Sample Street

Sample TownSample County

SampleAB1 1ABAUK/12345/12345

The People's Pension Trustee Limited

Manor Royal, Crawley, West Sussex, RH10 9QP.

Tel 0300 2000 555 Fax 01293 586801 www.bandce.co.uk

Registered office: Manor Royal, Crawley, West Sussex, RH10 9QP

Registered in England No. 8089267

To help us improve our service, we may record your call.

This way to more informationThis Member Booklet will take you through what you need to know about The People’s Pension

For people, not profit

Please keep this

booklet safe

YOU

US

US

YOU

YOU

YOU

For people, not profit 4103

/041

6

Use of active management and illiquid assets None – all assets are passively managed.

Use of external products (eg TDFs, DGFs) None – passive components are blended by the fund.

At-retirement objective Mixed objectives

Pre-retirement choices:

Number of non-default choices Adventurous Lifestyle Profile; Balanced Lifestyle Profile (default); Cautious Lifestyle Profile; B&CE Ethical; B&CE Shariah; B&CE Pre-Retirement; B&CE Annuity; B&CE Cash.

Number of lifestyles / target dated approaches Three – variations on risk level (Adventurous, Balanced, Cautious).

Number of actively managed fund choices None

Purpose of offering choice (eg retirement, risk, asset allocation)

Risk (Lifestyles)Retirement objective (Self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Yes – UFPLS available.

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

Same range is available post-retirement

Availability of post-retirement lifestyling No

Governance:

Product, advised or delegated investment decision-making

Advised.

Dynamism of asset allocation Stable

How often is the default(s) reviewed? Triennially, oversight quarterly.

7170

Appendix 1.

Smart Pension

Established in 2015, Smart Pensions focuses on the auto-enrolment market, offering a highly automated digital experience to small employers.

Number of DC members > 100,000

Number of employers 17,000

DC assets under management £12m

Annual DC contributions £15m

Master Trust Assurance Framework Yes

PQM Ready No

Default:

Total charge default level 0.75%

Asset allocation by age Lifestyling structure as shown below

Use of active management and illiquid assets None

Use of external products (eg TDFs, DGFs) Investments are in LGIM ETFs with an active management overlay by trustees with investment advice from Barnett Waddingham.

At-retirement objective Lump sum

Pre-retirement choices:

Number of non-default choices Two self-select

Number of lifestyles / target dated approaches Default lifestyling with member override.

Number of actively managed fund choices None

Purpose of offering choice (eg retirement, risk, asset allocation)

Risk (Self-select)Ethics (Self-select)

Post-retirement choice:

Ability to continue in the scheme post-retirement Not at present.

Consistency of post-retirement choices (ie range of funds) with pre-retirement choice

N/A

Availability of post-retirement lifestyling N/A

Governance:

Product, advised or delegated investment decision-making

Advised

Dynamism of asset allocation Stable, managed for a consistent level of risk.

How often is the default(s) reviewed? Triennial review, quarterly oversight.

7372

ChairRob Barrett,Axa Investment ManagersVice ChairAnnabel Tonry, J.P. Morgan Asset ManagementImmediate Past ChairAndrew Brown,Columbia Threadneedle InvestmentsExecutive DirectorLouise Farrand

E: info@dcif.co.ukdcif.co.uk