Can a DB master trust help me with my investment strategy? 

The investment strategies of defined benefit (DB) pension schemes face a growing range of pressures.

High trustee turnover, increasing regulation and additional considerations, including environmental, social and governance (ESG) issues, have increased the need for professional expertise when running the pensions investments of DB schemes. Volatile markets also require DB schemes to be agile and thoughtful as they try to secure the best returns for the scheme.

The very largest DB schemes possess the scale and resources to keep up with the latest investment practice and gain access to fresh ideas and opportunities. But small and midsize schemes often miss out on these opportunities due to smaller budgets.

A DB master trust, via the pooling of assets, allows DB schemes of all sizes to access a range of investment managers, asset classes and investment strategies which are tailored to their individual scheme’s circumstances, with professional trusteeship oversight. A DB master trust also allows you to delegate investment decisions while avoiding the cost and complications of a mandatory competitive tender process involved in some other options.

Master trusts provide benefits of scale

A key cost control benefit for pensions investments is economies of scale. For example, individual schemes in a DB master trust benefit from the buying power of all of the underlying assets within the trust, driving down manager fees and accessing more diverse and potentially better performing funds. In addition, the cost of advice is shared across the DB master trust, creating further potential savings for each underlying scheme.

Fiduciary management can enhance these benefits further still. For example, a DB scheme in the Mercer DB Master Trust not only benefits from the pooled assets of other DB schemes in the trust but also benefits from the £296 billion buying power of Mercer’s entire global fiduciary management business.

Real-time decisions benefit pensions investments

Even with the use of professional trustees, DB schemes’ investment decision-making still takes time, and at times of market volatility opportunities are inevitably missed. By using a good fiduciary manager, a DB master trust can provide real-time decision-making to lock in opportunities, therefore potentially improving investment returns. Some master trusts, including the Mercer DB Master Trust, also offer dynamic de-risking to potentially secure member benefits earlier, and at a possibly lower cost. The professional trustees then provide ongoing oversight over the fiduciary manager.

ESG impacts investment outcomes

ESG is not just a compliance exercise. Issues such as the climate emergency, treatment of communities and business ethics are expected to have an increasing impact on investment outcomes. Schemes need to be on the right side of this shift to capture opportunities.

Joining a DB master trust can allow schemes to build in best practice and stay ahead of developments as ESG rises up the agenda. For example, the Mercer DB Master Trust has three independent trustees who not only bring the expert knowledge you would expect from professional trustees but also their experience from sitting on numerous trustee boards, and the experiences of their colleagues.

While there are only a handful of DB master trust pension schemes in the UK, they are attracting growing interest from sponsors of DB pension schemes who are looking at ways of increasing efficiencies and potentially reducing costs. However, as different master trusts have different characteristics, those sponsors may find some are a better fit than others.

To find out more about the Mercer DB Master Trust and how it can help you meet the strategic goals of your DB pension scheme, contact us using the form below.

The very largest DB schemes have the scale to keep up with the latest investment practice but many schemes miss out. A DB master trust allows DB schemes of all sizes to access a range of investment managers, asset classes and investment strategies with professional trusteeship oversight.
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