Ladbrokes takes punt on mastertrust for AE

The household-name betting company is the latest medium-sized employer to announce its auto-enrolment strategy for 2013, which will see companies with between 500 and 49,999 eligible workers start their duties.

The company said its decision to pick the mastertrust, Legal & General Workplace Savings, was due to the low charges that would be levied on members’ savings by its emphasis on passive investment, and the communication tools the provider could deliver to its nation-wide workforce.

The scheme will have an annual member charge of less than 50 basis points.

“Members will benefit from potentially higher returns due to lower costs, which could lead to increased pension fund growth over the long term,” said Phil Rixon, pensions and benefits manager at Ladbrokes.

He added: “[The scheme] offers good, clear communication… including a website for responses to auto-enrolment notification, which many of our staff will find more convenient if they are located around the country, plus customer service helplines.”

The Ladbrokes Pension Scheme will replace the current group stakeholder pension plan, where the company matches employee contributions “up to a maximum of 15 per cent of base salary,” according to its 2011 annual report.

The company said it was not yet able to divulge the contribution levels for the new scheme.

Pros and cons of mastertrusts

Trust-based defined contribution schemes currently benefit from the ability to refund contributions if members leave the scheme within two years, which gives them an advantage in cost terms over their contract-based counterparts, where savings are locked in immediately.

“Right now that is a huge plus point [for employers], particularly if you are in a high-turnover industry,” said Philip Smith, head of DC at Buck Consultants.

But employers considering using a mastertrust for auto-enrolment should consider how much control they want over the investment options available to employees, said Will Aitken, senior consultant at Towers Watson.

“When it comes to defaults, we’re finding that trustees of some of the newer mastertrust providers are focusing on cost and cost alone,” he said.

“That means some asset classes – and nearly all externally managed funds – are effectively out of bounds for default funds.”

The default in the Ladbrokes scheme is a multi-asset lifestyle fund that holds as much as half of its money in bonds, and the remainder in equities and alternatives. It is predominantly managed on a passive basis.

“Index tracking mitigates risk and keeps charges very competitive,” said Rixon. “Members will have the choice of a further range of 16 funds, active and passive, covering the risk and asset class spectrum.”

Employers are keen to reduce the volatility that first-time savers experience, for fears that they will opt out.

“There is a definite trend… to try to dampen down some of the volatility that you may historically have seen,” said Smith.

Over the 10 years approaching a member’s retirement date, the default investment strategy gradually switches to 75 per cent gilts and 25 per cent cash.

By the end of next year, L&G expects to auto-enrol more than 500,000 workers, including from the schemes it already administers.