Master trust capacity issues could cost retirees, notes report

PwC confident sector will consolidate and improve outcome for pensioners but short-term challenges remain

Retiring workers could end up out of pocket by thousands of euros every year for the rest of their lives if the new master trusts managing Irish pension funds continue to struggle with capacity constraints.

Master trusts are the new pension management vehicles designed to improve outcomes for the pension funds of Irish workers. Each trust manages the pension assets of many employers rather than each company running their own scheme.

But a report by PwC says a number of the new trusts are struggling “to meet the demands of the evolving pensions landscape”. It cites administrative pressure, capacity issues and delays in disclosing information to trust scheme members.

It notes that blame for issues arising has focused to date on the consolidation in the market for defined contribution pensions schemes — where a pension is determined by the investment performance of contributions made — but adds that further consolidation is likely this year. Along with planning for the impending auto-enrolment regime and the ongoing increase in the burden of compliance, this “can be expected to result in further capacity challenges”, it says.


While slow service may not have a direct financial impact in many areas, it has the potential to lead to financial loss for members when it comes to areas like the speed at which contributions to the scheme are invested and in the drawdown of pension benefits, PwC pensions partner Munro O’Dwyer and his fellow authors, Olivia Kelly and Ross Mitchell, say.

Using an example of annuity rates from last December, the report shows that the annual inflation-proofed payment a retiree could expect to get with a €1 million pension fund could vary from €26,040 to €24,601 depending on when in that month their annuity contract was agreed — a difference of €1,439 that would be locked into place forever.

It advises employers to act early to flag priority tasks with their master trusts to ensure the impact on themselves and their workers is minimised.

Despite the short-term concerns, the PwC report expects further consolidation and maturing in the master trust sector over coming years as the new structures settle down.

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It says that, on the basis of international experience around the advantages of scale and the potential for investment innovation in such schemes, they have the potential to significantly improve investment outcome and thus pensions for individual workers on retirement.

At the end of last year, the PwC report says that 17 master trusts had been registered in Ireland. Figures from October show they had €17.7 billion in pension assets under management for more than 400,000 who are or have worked for close to 21,000 employers. That figure had grown to €22 billion by February.

It was up sharply on figures from 15 months earlier where the 12 trusts then in place were managing just €2.6 billion for 73,500 current and former staff of 821 companies.

The EU Iorp II directive — the second institution for occupational retirement provision directive — puts in place new, higher governance and risk management standards to maximise consumer protection. These impose significantly higher costs. Master trusts, which manage pension schemes of a number of different employers, are seen as better placed to bear such costs than the 75,000 mostly small independent company pension schemes that have been a feature of Ireland’s pension landscape.

Mr O’Dwyer estimates that the new trusts have a potential market of 630,000 private sector workers who are earning more than €20,000, although that number includes people who may already be signed up to alternative personal retirement savings accounts (PRSAs) and others who will simply opt out of pension saving.

Dominic Coyle

Dominic Coyle

Dominic Coyle is Deputy Business Editor of The Irish Times