Navigating Pension Consolidation: Insights for Trustees and Employers 

When changes are made to the current master trust provider by the employer, this will involve redirecting active contributions from one master trust to another. In some cases, an employer may request the transfer of accrued assets within the employer section of the current master trust to another master trust. While this strategy can provide advantages to members through pension consolidation, it necessitates a thorough approach to trustee responsibilities and member considerations.

While the implications of requesting a bulk transfer are significant, it is also important to acknowledge the potential advantages that such transfers can offer. For employers, bulk transfers can facilitate pension consolidation, leading to streamlined administration and potentially lower costs associated with managing multiple pension schemes. Additionally, members may benefit from improved investment options and enhanced governance within a new master trust. By carefully considering the merits of a bulk transfer, trustees and employers can ensure that the decision aligns with the best interests of all members. Open communication and thorough member engagement throughout the process can help mitigate concerns and foster a positive perception of the transfer, ultimately supporting a smoother transition and better outcomes for all stakeholders.

The decision to redirect active contributions is solely within the employer's remit. However, transferring accrued assets through a bulk transfer requires the explicit consent of the current master trust’s trustees, who remain accountable for ensuring the transfer serves the best interests of members. This division of roles highlights the collaborative yet complex nature of the consolidation process.

Employer pension sections typically include both active (employed) and deferred (ex-employed) members and employer requests for transfer may include all members in their section. Whilst active members should be aware of changes to the employer pension scheme, a critical challenge may arise when address records for deferred members are outdated, leaving them unaware of the transfer, which could also involve a change in asset allocation. Furthermore, both active and deferred members may have invested significant time utilising the current master trust’s portal and apps for personalised pension and financial guidance. Members who value these services may feel disrupted by a transfer, potentially leading to complaints if they are not given the option to retain their accrued assets in the current master trust.

Bulk transfers come with financial implications. Trustees must consider advisory, communication, and implementation costs, which employers may agree to cover or may be required to cover. However, trustees may conclude that the transfer is not in members’ best interests during the advisory stage, potentially leaving employers to bear costs without achieving their intended outcome.

Moreover, trustees face potential liabilities arising from member complaints or compensation claims related to the transfer that they had undertaken. To mitigate these risks, trustees could look to seek indemnities from the employer to cover any associated costs. These liabilities could be significant, making it imperative for employers to factor-in indemnity provisions when requesting a bulk transfer.

A bulk transfer initiated with trustee consent can streamline the process but risks alienating members who benefit greatly from the existing master trust’s offerings. An alternative approach is a member-consent transfer, where members actively choose to transfer to the new arrangement. While this method requires robust communication and effort, it can achieve high transfer rates, with the receiving master trust taking on the responsibility of facilitating communications and gathering responses. This empowers members to make informed decisions that best suit their financial needs while alleviating trustee concerns about potential grievances.

As part of the commercial pricing, the receiving master trust must carefully consider the membership and assets likely to be included in the bulk transfer when determining the annual management charge.  If a member-consent exercise is conducted as part of a bulk transfer, the receiving master trust will be keen to ensure this process is as effective as possible, providing appropriate resources to the employer for member communication.

It is crucial to understand that while master trust providers should not be reluctant to facilitate a bulk transfer of assets to another scheme, the trustees of the current master trust have a fiduciary duty to prioritise the best interests of their members. This responsibility involves carefully evaluating the implications of a bulk transfer to ensure that it is executed in a manner that is both efficient and beneficial for all parties involved. By focusing on the needs of current members, trustees aim to safeguard their financial well-being and ensure a smooth transition, recognising that there can be clear advantages to pension consolidation from a member perspective. The processes surrounding bulk transfers should not be intended to create barriers but rather to promote a thorough and thoughtful approach that enhances member outcomes and supports the employer's objectives.

Pension consolidation can provide meaningful advantages for members and employers but requires trustees to navigate a complex range of responsibilities, costs, and potential risks. By addressing the distinct needs of active and deferred members, evaluating alternative transfer methods, and effectively managing liabilities, employers and trustees can ensure the process aligns with the best interests of all stakeholders, fostering trust and delivering improved outcomes.