Delivery of good service is at the core of Master Trust Authorisation (MAT) and we can see how it has thus far sorted the wheat from the chaff, as some providers exited the market and others have gone from strength to strength. MAT sets the baseline for delivery of core services such as transaction processing and, in theory, every provider should currently be operating above a regulatory baseline. As we are not expecting much change to MAT any time soon, what else do we think will drive improvements and change to service delivery?
Savers will drive change for improvements. We are nearing the generation of defined contribution (DC) only savers coming toward retirement. What they need will be different from those with the safety net of defined benefit (DB) pensions. Services will move from administration only to incorporate education, financial wellbeing and holistic planning tools. Currently, elements of these are provided but not in totality. Administrators will not be the only ones delivering services to savers in Master Trusts.
The relationship between regulatory pressure and service improvement isn’t always straightforward. We believe that we will see further pressure being directed at Master Trusts. What is good is usually defined by Trustees and Investment Governance Committees (IGCs). The direction of travel looks to be a more prescriptive definition of what good looks like and Master Trusts will have to evidence compliance with this. There are often unintended consequences of these initiatives, but we do expect it will create greater competition between Master Trusts as they sell their ability to deliver more features and being better than just ‘good’.
Take the STAR initiative, using technology and a legal framework to reduce transfer times, the process had been available for some time with transfers between insurance companies but it took regulator pressure for it to get real traction in the Trust world, and now everyone wants to join the transfer club. Another example is the Financial Conduct Authority’s (FCA) introduction of Investment Pathways. This was a limited intervention to address the harm in the non-advised drawdown market, however, not many clients expect Master Trusts to offer them.
Future service will be defined by market pressures. At present there is intense pressure on price, with 30 basis points being expected for large clients with high value savers. At the other end of the market 50 basis points is competitive for micro-employers and low paid savers. Should the downward trend on fees continue, it could affect the delivery of services and what is delivered. There will be a divergence of the market with some providing a proposition with many added value services whilst others offer the bare minimum focusing mainly on the accumulation of funds. There will be some who are able to serve the middle ground.
We cannot ignore the effects the pandemic will have on service delivery models. Working from home (WFH) became the norm for eight months and many expect it to continue into 2021. How this will affect the long-term service delivery model, is not yet clear. Technology has proven WFH can deliver what is needed to keep things ticking over, contributions collected, invested and benefits paid out. Whilst many working in the sector have expressed a desire to continue WFH, we must not forget some are struggling. Going forward there will be more flexibility, enabling a mixture of WFH and office time. Research by Harvard University1 has shown productivity in financial services has not dropped because of WFH and, in fact, workers are delivering an extra 47 minutes of work as day.
Individually these different pressures would influence service in terms of delivery models and what is provided by Master Trusts. However, bringing them together we will see an expansion of service away from purely maintaining member records and investments. Services will not be the same as markets segment and what is affordable becomes key. Regulation has set bare minimum standards, but competition pressures will see continued innovation in service delivery.
This article was featured in Pensions Aspects magazine November/December edition.
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