Using a master trust to provide effective governance
Developing a flexible solution with a customised investment strategy.
Using a master trust to provide effective governance.
The organisation: a UK university
The client is a leading UK university (the ‘University’) that aims to provide a high-quality, affordable, and flexible pension arrangement for its employees. Like many employers in the UK, by 2011, the University was struggling to meet the rising cost of its defined benefit (DB) pension scheme, which had risen from 24% of pensionable salary of active members in 2008 to 37% in 2011.
To manage these rising costs and reduce funding level volatility, following a consultation with its stakeholders, the University decided to continue to offer a capped DB pension scheme for new employees who joined after 1 January 2013. At the same time, it decided to offer a fixed contribution of 5% of total salary to a newly introduced defined contribution (DC) pension scheme to compensate for the capped benefits.
Given that members were accustomed to a high-quality pension scheme, managed internally, it was important to the University that the DC scheme would feature first-class governance and administration processes. It should also prove sufficiently flexible to operate alongside the in-house DB scheme with the ability, for instance, to accommodate the payment of benefits at retirement or death from both schemes.
Master trust flexibility wins the deal
After evaluating the options available, the University concluded that a master trust arrangement would be the most appropriate to meet its needs. Following an in-depth selection exercise, which involved close dialogue between the Trustee of the DB scheme and the Trustee of the SEI Master Trust, SEI was selected.
The SEI Master Trust appealed due to its ability to combine third-party administration, external managers, and independent trustees. Within this structure, administration processes, communications, and investment strategy were designed specifically to align with the membership profile.
In the table below, we have detailed the core requirements for the University and how the SEI Master Trust solution was customised to meet them. These customised processes were created specifically for the University to help ensure that the DC scheme operated seamlessly within its existing processes and standard fee structure.
This case study highlights:
|Flexible solution||The flexibility offered through the SEI Master Trust for employers looking to move from in-house pension schemes (DB or DC) without giving up the paternal oversight. This can be offered through a customised master trust as opposed to an off-the-shelf mass market offering.|
|Customised strategy||The importance of designing a customised default investment strategy as not every DC pension scheme is the same. Schemes vary depending on the other benefits on offer, financial literacy of the membership, and contribution rates. All of these impact how much risk should be taken within the default strategy.|
|Communication is key||The importance of not only DC member communications, but also communication to the employer. Providing access to detailed management information empowers employers and HR departments to assist their employees.|
Administration for multiple payroll systems
The SEI Master Trust features an administration system that is able to handle output from the University’s multiple payroll systems. The University is made up of a number of institutions and colleges, all of which operate different payroll systems. Some employees also have more than one job within the University, meaning that they may have multiple payroll records.
As part of the implementation, we set up a customised process to accept membership and contribution data from the University. Each payroll location has a separate login that allows each one to load schedules directly into the administrator’s database. This customised data upload process could be adapted to accommodate employees who have multiple roles and salaries within the University.
SEI also provided face-to-face training to the University at implementation, alongside a detailed manual for future reference.
Member communication made clear
Shifting from a hybrid DB/DC arrangement, in which both schemes are administered separately, the University wanted to provide members with a single-scheme experience. SEI worked with the University to produce a number of information sheets that together formed a single-member information booklet. In addition, the master trust website is linked directly into the University’s intranet page, allowing members to go to one place for all their pension-related information.
Through the SEI Master Trust, University employers have access to member accounts, allowing them to assist members with any queries, instead of using their own resources for member support.
The SEI Master Trust also provides the University with member data to include along with the benefit statement so that members can see their total pension benefit being accumulated.
Investment design aimed at member goals
The most important criteria in the selection of the master trust provider included the choice of investments, design of the default investment strategy, and governance of the investment arrangements. The SEI Master Trust offers a range of funds that vary across active and passive managers, as well as multi-asset, risk-graded funds. The active funds are underpinned by SEI’s manager-of-managers approach, which allows investment managers to be changed without requiring consent from the member.
The University decided to offer members a range of multi-asset, multi-manager funds, so that members were not obliged to make manager selection or asset allocation decisions. In addition, the University decided to offer two lifestyle strategies: a high-risk and low-risk strategy. The design of the default strategy was customised to the University’s membership, keeping in mind the guaranteed benefit that members will also receive from the DB scheme. The DC investment strategy is reviewed and monitored by the Trustee of the SEI Master Trust.
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This is a Marketing Communication. This webpage has been created in relation to the SEI Master Trust, an occupational pension scheme which is authorised by the Pensions Regulator. The trustee of the SEI Master Trust is SEI Trustees Limited. SEI Trustees Limited has appointed SEI Investments (Europe) Ltd (“SIEL”) as investment adviser to the SEI Master Trust and pursuant to its investment advisory agreement. This information is issued and approved by SEI Investments (Europe) Ltd (“SIEL”) 1st Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR. This advert and its contents are directed at persons who have been categorised by SIEL as a Professional Client and is not for further distribution. SIEL is authorised and regulated by the Financial Conduct Authority. While considerable care has been taken to ensure the information contained within this webpage is accurate and up-to-date and complies with relevant legislation and regulations, no warranty is given and no representation is made as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information. The information in this webpage is for general information purposes only and does not constitute investment advice. You should read all the investment information and details on the funds before making investment choices. Please refer to our latest Prospectus (which includes information in relation to the use of derivatives and the risks associated with the use of derivative instruments), Key Investor Information Document, Summary of UCITS Shareholder rights (which includes a summary of the rights that shareholders of our funds have) and the latest Annual or Semi-Annual Reports for more information on our funds, which can be located at Fund Documents (https://seic.com/en-gb/fund-documents). And you should read the terms and conditions contained in the Prospectus (including the risk factors) before making any investment decision. If you are in any doubt about whether or how to invest, you should seek independent advice before making any decisions. The UCITS may be de-registered for sale in an EEA jurisdiction in accordance with the provisions of the UCITS Directive. Past Performance does not predict future returns. Investment in the range of the SEI Master Trust’s funds are intended as a long-term investment. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested. This document and its contents are for Institutional Investors only and not for further distribution.
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