Our leading SEI Master Trust solution is designed to meet the specific needs of each defined contribution pension scheme, without reducing the scheme’s governance quality.
Effective pension scheme governance is risk-based and can help to minimise the potential for problems that may arise in the future. It can also increase trust amongst scheme members, which in turn can make them more engaged and likely to save.
We approach governance through three distinct lenses:
Investment Governance: Setting a benchmark for your default strategy
Over 80% of members in a defined contribution (DC) scheme are likely to invest via a default investment strategy*. But for decades, the average default has stubbornly remained a lifestyle strategy which generally invests members’ monies in a global equity fund until they are five to ten years away from retirement at which point they are de-risked into bonds and cash.
Focus not only on the initial design of the default, but also the targets against which performance can be measured.
These lifestyle strategies tend not to focus on the risk profile of the membership and even the level of contributions being made. As a result, there is no benchmark with which to judge the default investment strategy or indeed any meaningful metric which the governance committee can monitor to determine whether members will receive an appropriate income at retirement.
This is why we work with employers and trustees to:
Focus not only on the initial design of the default, but also the targets against which performance can be measured
Undertake a thorough review of your default strategy
Communications governance: Utilising member data in an effort to improve engagement
Investors’ attitudes towards retirement savings evolve over time. Good governance can reflect this in several ways:
- Providing communications that supply members with timely information as their circumstances change
- Monitoring the decisions that members are making to ensure they are suitable for their profile
- Providing targeted messages from trustees to help guide members away from making inappropriate decisions
Operational governance: Monitoring trustees
According to the Pension Regulator's DC Code of Practice and accompanying guidance, the documents help "Trustees meet the standards of practice that we believe form the basis of quality governance and administration in occupational defined contribution (DC) trust-based pension schemes.” But they also place additional pressure on trustees by requiring to them to devote even more time to reading, understanding and applying the rules.
Independent trustees can assist trustees in navigating this increasingly complex and demanding environment by bringing an independent view and the experience that comes from managing a large number of schemes. This can include:
Ensuring the trustee board remains apprised of the latest industry developments
Monitoring the effectiveness of investment advisers
Identifying any gaps in trustee knowledge to steer future training programmes
Implementing change can be difficult for resource-constrained trustees.
Many schemes are prevented from implementing changes due to a lack of scale and resources. Yet even the popular option of establishing a contract-based scheme to pass the responsibility to an insurance company could offer little respite, as employers are now required to set up a governance committee and take back responsibility for monitoring the scheme.
Master trusts may enhance governance and provide better outcomes for DC scheme members, enabling employers to maintain strong levels of governance by:
Outsourcing certain responsibilities to an independent trustee body
Delivering a customised investment range and default strategies designed to meet a scheme's specific objectives and employee profile
Engaging members using advanced administration systems and targeted member communications.
A master trust may be the right solution for employers looking to provide -- rather than merely facilitate -- improved retirement outcomes for members whilst relieving the burden of internal governance.
*Default Fund Design and Governance in DC Pensions, 2013 April 2014
Information provided by SEI Trustees Limited (the “Trustee”) in relation to the SEI Master Trust, an occupational pension scheme. This information is issued on behalf of the Trustee by SEI Investments (Europe) Limited, which is authorised and regulated by the Financial Conduct Authority. This information is for general information purposes only and does not constitute investment advice. You should read all the investment information and details on the funds before making investment choices. If you are in any doubt about whether or how to invest, you should seek independent advice before making any decisions. This information may not be reproduced or redistributed without the written consent of the Trustee.
Past performance is not a guarantee of future performance. Investment in the range of the SEI Master Trust’s funds is intended as a long-term investment. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.