First Bus’ defined contribution (DC) pension scheme has opted not to consolidate into a master trust so far. Head of pensions Muntazir Hadadi explains why, with contributions from the scheme’s lawyer and members.
In a rapidly evolving UK pensions landscape, dominated by consolidation and the rise of master trusts, First Bus has taken a bold and unusual step.
Rather than transferring its 27,000 DC pension scheme members and £300m of assets to a master trust, the company decided to set up a new, bespoke DC trust. This decision reflects a desire to retain control, flexibility, and a tailored approach to pensions.
The evolution of the DC landscape
The DC market has been in a state of flux since the introduction of automatic enrolment in 2012. More than 29 million new savers have begun pension saving for the first time, according to the Pensions Regulator, with total assets in DC schemes surpassing £204bn last year.
Not only is the market bigger, but there are also more pension vehicles available. As auto-enrolment was rolled out, thousands of employers moved to master trusts – multi-employer schemes that offer economies of scale and streamlined administration – as their preferred DC vehicle. This brought with it a need for new, robust governance requirements, as laid down in the Pension Schemes Act 2017.
By the close of 2024, 91% of members in DC schemes with more than 11 members were in master trusts, according to the Pensions Regulator.
This year, the government has proposed new legislation to deliver scale and consolidation to the DC market through the creation of “megafunds”. This will require master trusts and other pension providers to reach a minimum of £25bn in assets under management.
Why not a master trust?
In this context of a rapidly evolving DC market, Muntazir Hadadi, head of pensions at First Bus, took the bold decision to keep the scheme in-house while waiting to see how the market evolves.
“We wanted to retain control over the scheme’s rules, governance, and communications, and to ensure our members’ interests remain front and centre.”
Muntazir Hadadi, First Bus
Unlike master trusts, where rules are standardised across multiple employers, an own-trust pension scheme allows bespoke solutions.
“We wanted to retain control over the scheme’s rules, governance, and communications, and to ensure our members’ interests remain front and centre,” says Hadadi, who has worked for First Bus since 2016.
“It also helps us engage with our staff and strengthen relationships with our trade union colleagues, who play an active role in the scheme as member-nominated trustees.”
Streamlining and control
Setting up a new trust in today’s regulatory environment is no small feat, but it has given First Bus the opportunity to create a modern, more efficient scheme that meets regulatory requirements and best practice governance.
“On balance, a master trust may still be cheaper, but the new streamlined rules significantly reduce the call on management time,” Hadadi says. “And we can quickly respond to changes in our business and workforce.”
The pension scheme’s advisers created a set of DC rules, free from unnecessary procedural requirements – which are often a hangover from other types of scheme, such as defined benefit arrangements.
Stephen Richards, head of pensions at Stephenson Harwood, who drafted the First Bus scheme’s new DC rulebook, says: “I have been dreaming of this opportunity for so many years. I loved it. The ability to write my own set of rules, including the technical points I wanted to, was great.”
Bringing the bus drivers on board
For First Bus, the main advantage of the own-trust model is retaining control. The trustee board includes staff members such as Graham Mellor, a First Bus electrician, and bus driver Darren Ford.
Having members on the board also helps with engagement, which can be a challenge for a workforce spread across depots and constantly on the move.
“During a recent depot drop-in tour, members responded really positively to meeting the member-nominated trustees,” says Hadadi.
“It builds trust and really resonates with colleagues when you can say: ‘This is the person responsible for looking after your money.’ The trustees know the workforce, understand what matters to members, and can bring that insight, along with any concerns, directly to the boardroom.”
Bespoke scheme communications are another major benefit. Many members have limited access to email communications due to the nature of their job, so pension scheme updates need to be delivered in a way that takes this into account. In addition, First Bus aims to cut out pensions jargon – and early employee feedback has been positive.
“The trustees know the workforce, understand what matters to members, and can bring that insight, along with any concerns, directly to the boardroom.”
Muntazir Hadadi, First Bus
“I like seeing First Bus in the scheme’s name - it makes it feel like it’s really ours,” says John, a pension scheme member and bus driver with more than 20 years’ experience.
“And it’s good to know the scheme’s run by people who get our business and that we have a say in how it’s looked after.”
First Bus has also retained control of its investment strategy, working with Aegon to offer members a range of options to suit different risk appetites and retirement goals, while keeping charges competitive.
As Hadadi explains: “Having our own arrangement means decisions are made with our members at the forefront, rather than as part of a much larger, generic arrangement.”
The road ahead
While the own-trust model offers control and flexibility now, First Bus is not ruling out other options for the future. The company is keeping a close eye on developments in the master trust market, as well as the emergence of collective DC schemes, which could combine some of the best features of defined benefit and defined contribution arrangements.
“With the Pension Schemes Bill on the horizon, we didn’t want to ‘pick a horse’ before knowing what our options are,” Hadadi says.
“We’re proud to be taking a different path, and we believe it’s the right one for our people. By keeping our scheme in-house, we can focus on what matters most: delivering great outcomes for our members, both now and in the future.”
In an evolving pensions market, First Bus’ decision to launch its own DC trust is a reminder that there is no one-size-fits-all solution. Sometimes, choosing a new route is the best way to put members first.
