The National Association of Pension Funds in the UK has proposed a collective trust-based defined contribution (DC) alternative to the Pension Commission’s National Pension Savings Scheme(NPSS) concept.
“Collective trust-based DC schemes would be a good alternative to the NPSS,” said NAPF chief executive Christine Farnish. Up to 20 collective DC schemes into which workers would be automatically enrolled are envisaged.
The ‘super trusts’ would be not for profit, large scale bodies who sole job was to get a good deal for consumers, said the NAPF.
“They would run at low cost and manage investments in a collective way, thus reducing the risk for individuals and doing away with the need for people to make complicated investment choices themselves,” said Farnish.
The super trusts would be multi-employer pension arrangements, set up on a regional, sectoral or national basis, which would authorised by the Pensions Regulator. Each one would be governed and run by a board of trustees, responsible for administration, investment, governance and member communications.
The association believes that they could be operated at around 40 basis points per annum, which is “significantly lower” than other proposals.
The trusts would offer choice for employers to pick the appropriate one for their workforce and there would be strong competition between the commercial providers of services to the trusts. Contracts with providers would be awarded on the basis of cost and quality of service.
Individual unitised accounts would be given to each member to provide the benefits at retirement. When moving to a new employer, the member would be required to transfer their account to the new Super Trust.
The NAPF sees the super trust adopting a pooled investment approach, which would “mitigate many of the investment risks inherent in the NPSS and other individual DC alternatives”. Investment decisions would be taken by experts within the trust.
Farnish said: “The super trust concept builds on the best of what we’ve got. Having a number of super trusts avoids the dangers of having a single, all powerful institution that is close to government, and the risk of setting up a massive new infrastructure to collect and allocate savings.”