Bathroom and kitchen products company Norcros is transferring its money purchase benefits to a mastertrust arrangement to provide "more focused governance" and greater flexibility.
Mastertrusts have recently come under an increasing amount of scrutiny due to regulatory concerns, but the new pensions bill is set to introduce regulations to smooth things out.
Current Norcros employees are able to build up benefits in a money purchase section of the scheme.
If a company is considering such a change, it is critical that it understands the strengths and features of the mastertrusts that are available
Ian McQuade, Muse Advisory
“For the future, those benefits will build up under a mastertrust arrangement with Legal & General,” states an update to scheme members published in April this year.
A company spokesperson said: "The key drivers are to allow members to take advantage of the new flexible pension rules and increase the web-based online facilities, with a more focused approach to good scheme governance."
The current relevant employees of the group have been consulted formally about the change. Most of the money purchase funds held under the Norcros Security Plan will be transferred to the mastertrust.
“There is protective legislation around this process. In particular, the plan’s scheme actuary will have to certify that members will be no worse off after transfer, and the plan’s trustee will need to agree the transfers are in members’ interests,” explains the update.
Source: Norcros Group
Preservation legislation
Claire van Rees, partner at law firm Sackers, said member consent can be an issue when moving an occupational DC scheme to a mastertrust.
“Realistically, you’re not going to be able to get every single member of your scheme to agree to transfer to the mastertrust, so you need to be able to do it without their consent,” she said.
This is when preservation legislation comes into play. Van Rees said that aspects of this legislation govern transferring peoples’ pension rights without their consent.
This includes a requirement for a certificate from an actuary confirming that members’ rights in the receiving scheme are broadly similar to what they had been in the transferring scheme.
This legislation is very old and “could do with a bit of an update,” so that it works better for defined contribution schemes, van Rees noted. She said there is an opportunity to cover these types of technical issues in the new pensions bill, which is due in the autumn.
Tax legislation can also cause complications when transferring to a mastertrust, she said. For example, “if you’re transferring a DC section that’s attached to a [defined benefit] scheme, and members have got benefits in both, that can sometimes mess with their tax protections”, she explained.
Van Rees said that from a trustee perspective it is important to look for any potential technical difficulties at an early stage, and trustees should also keep an eye on the regulatory environment with regard to mastertrusts.
Good governance
Ian McQuade, director at consultancy Muse Advisory, said: “Trustees may feel that a mastertrust will be more consistent in its communication with scheme members, and sometimes a company may wish to ensure that there is good governance but doesn’t wish to provide the resources itself to achieve this”.
As at March 2015, there were about 785 employees in the Norcros money purchase section. However, for larger schemes there is very little difference in the process of moving to a mastertrust, said McQuade.
“It might be more difficult to demonstrate the benefits of a transition to the members,” he said, but “it will really depend on the details of the current arrangement”.
McQuade said it was important to ensure that the cost of transition, including the selling of funds in one trust and the purchase of funds in the mastertrust, is cost-neutral to the members.
He added: “This can be more difficult to achieve if the selling of funds swings their price toward the underlying ‘bid’ price, so it is important to understand how the mastertrust can help with the process”.
Ultimately, “if a company is considering such a change, it is critical that it understands the strengths and features of the mastertrusts that are available”.
