Salvus Master Trust has unveiled plans to acquire the members and assets of the £7m Complete Master Trust, as the sector’s consolidation drive begins to gather pace.
Only a handful of small mastertrusts have exited the market so far, but the introduction of a new authorisation regime in October is expected to speed the winding down of propositions that have not achieved sufficient scale or governance.
Salvus will take over responsibility for Complete’s 1,200 members and 20 employers from May 1 this year. The deal is likely to help Salvus, backed by Goddard Perry Group, in its own bid to achieve commercial viability, bringing total assets to more than £100m and membership to more than 46,000.
Trustees shouldn’t be swayed by the product provider or owner
Mark Futcher, Barnett Waddingham
Salvus has previously been reported to be in the market for multiple new books, and founder Steve Goddard confirmed that it is “looking at a couple of others at the moment”.
He said the costs of the transition were “palatable”, and that the deal could be seen as both schemes helping each other.
“It’s in our interest because we want new business and it’s in their interest to get rid of the problem,” he said.
Consolidation set to gather pace
The Pensions Regulator has said it expects the number of mastertrusts to shrink as a consequence of its drive for better standards of governance in the sector.
“Either they wind up or they transfer into other mastertrusts, so it’s not surprising that there’s some activity,” said Helen Ball, partner and head of defined contribution at law firm Sackers.
Those exits from the market are likely to take place before the regulator begins taking applications for mastertrust authorisation on October 1 this year. At this date, regulations enforcing the Pension Schemes Act 2017, including conditions on exit from the market, will take force.
That means as many as 30 schemes could consolidate in the next five months, according to Ball.
“If you leave it until after then, you’re squarely within the provisions of the new regulations,” she said. “If you wind it up before then, you may have more options.”
Admin could be a sticking point
Mastertrust consolidation will not be without its difficulties. The most attractive part of a deal for companies running acquisitive mastertrusts will be the prospect of redirecting future contributions, helping them in their quest for scale.
“Any provider would probably want to step in and be an easy alternative to accept future contributions,” said Mark Futcher, head of workplace wealth at consultancy Barnett Waddingham.
Taking on existing pots and their administration, however, is another question entirely.
Goddard said there had been no issues with Complete’s administration, but noted that data quality would be a key commercial consideration.
“If it’s poor data quality then it’s going to delay things, so that will restrict some of the deals,” he said, although he added that receiving trustees would have a duty to make sure the scheme was not taking on any undue administrative liability.
Trustees must remember their duty
The role of trustees is crucial in consolidation, agreed Futcher. Ceding trustees should “minimise the disruption and maintain whatever value there is in the plan” and should be shopping around, while receiving trustees should also block anything that endangers their membership.
“They shouldn’t be swayed by the product provider or owner,” he said. “If they can also solve some of those issues that’s helpful, but it should in no way be a priority.”
The People's Pension absorbs Your Workplace Pension
The People's Pension has become the first mastertrust to publicise the acquisition of another mastertrust, as a new regime – under which mastertrusts must be authorised by the Pensions Regulator – is set to lead to further market consolidation this year.
According to Futcher, deals will flow more easily where schemes are invested in the same funds, and where administration is not an issue. If barriers to consolidation prove insurmountable, he suggested the government consider Nest.
“Nest needs to grow its assets under management as well, and if we’ve given it this public obligation to accept anyone... then why not use it as the consolidator of last resort?” he asked.
