Fidelity Worldwide Investment has appointed PTL as the professional trustee of its mastertrust in a move that will see the governance of the scheme run independently, as employers look to manage potential conflicts of interest in the structure.
Fidelity announced it would be launching a mastertrust last month in response to demand from blue-chip companies.
Potential mastertrust issues
Conflicts of interest as a result of the relationship between the provider and trustees.
Decision-making powers vested with the provider rather than trustees.
A lack of independent oversight in some mastertrusts – member and employer representatives are unlikely to be involved in important decision-making processes.
Complex and opaque investment structures.
Source: the Pensions Regulator.
The appointment highlights the growing debate about whether the governance of mastertrusts should be managed independently to avoid conflicts of interest.
The provider said it wanted its approach to reflect “absolute best practice” in line with the Pensions Regulator’s requirements around governance for defined contribution schemes.
Dan Smith, director, business development DC and workplace savings at Fidelity, said its independent approach was also a conscious effort to be prepared for possible future regulation.
"A lot of what we have been doing with the mastertrust has been about looking at the future governance structure and compliance in terms of direction of travel and what is coming down the pipeline from different bodies," he said.
Smith acknowledged independent trusteeship was a more costly route, but said the costs could be spread "quite thinly" across a large number of clients because there was only one governance body and one set of overheads.
As part of a consultation packageon the regulatory approach for DC, the regulator identified a number of characteristics that could prevent mastertrusts from delivering good outcomes (see box).
Conflicts of interest
Some of the issues the regulator identified included decision-making powers vested with the provider, rather than trustees, and complex and opaque investment structures.
Richard Butcher, managing director at PTL, said in a statement that the industry needed to do a lot more to ensure effective governance.
“Parts of the industry still need to wake up to the idea of providing independence and best practice in the DC governance process," he added.
It is hard for any kind of pension scheme to get away from conflicts of interest, said Kevin LeGrand, head of pensions policy at Buck Consultants, but there are ways for mastertrusts and other schemes to deal with this issue.
"It is perfectly possible [to manage conflicts of interests] if you are professional and you are clear about what you are doing and how you are doing it," LeGrand said.
He added: "There are plenty of schemes that run perfectly well, recognising that those conflicts exist but working within that."
Even where independent trusteeship exists there could still be potential downsides, said Mark Pemberthy, director and head of auto-enrolment at JLT Benefit Solutions.
"There is an additional cost for independent trusteeship, which the member pays for in many of these schemes, so the trusteeship needs to be effective if member outcomes are to be improved financially," he added.
