Help from PASA with master trust transition guidance
Guidance is available from the Pension Administration Standards Association (PASA) on how to make transition work best for members with the consolidation of master trusts. The Pensions Regulator (TPR) commented “Prioritising data as well as putting savers and employers at the heart, including keeping them informed, is key to a successful transfer and continuing confidence in pensions.” The PASA Master Trust Transition Guidance November 2019 creates a best practice framework to assist employers, trustees and advisers, ensuring members’ benefits are correctly recorded and administered. With over 10 million people with savings in master trust arrangements, this guidance is very welcome.
The transition can be either (1) non-regulated transition – a single employer trust decides to move their pension scheme and pension administration to a master trust provider; or (2) regulated transition – an existing master trust transitioning to an alternative master trust under Continuity Option One and is overseen by TPR.
Any decision to transition all members and then wind up a master trust must follow Continuity Option One, as set out in the Occupational Pension Scheme Master Trusts/Regulations 2018 (the ‘Master Trusts Regulations’).
Planning, Communication, Data, Asset transition and Legal trust duties are the key components to a timely and efficient transition.
Key points made in the guidance are:
- Trust law duties must be observed – with a comparison being made of the ceding trust arrangements to the new trust for charges, member services, benefits/investment default and other options, any security of member benefits through the Financial Services Compensation Scheme, and methods of dealing with member transfer requests, divorce and death cases
- Employee consultation (for non-regulated transitions) – potential reduction of contributions
- Ceasing DC benefits in ceding scheme – avoid any potential duplication of benefits and stopping contribution and death benefits
- Getting agreements right – transfer deed reflecting practical reality of administration work, dis-investment of out of market assets and in-specie transfers
- Communication to members – of proposed transfer and value of rights at least 30 days before proposed transfer
- HMRC protections check – for ceding members to see if any protections lost on transfer
- Actuarial certification – if any guaranteed rates of return, annuit rate or sum assured
Planning and implementation phases
There is advice with checklist on how best to plan and build in time for testing and re-testing administration capability with TPR’s flow diagram linked for the mandatory timescales for key transfer and wind-up activities (Continuity Option One)
Recommended communication goals and measures of success are given together with an Appendix B Model Migration Project Plan B of the communication deliverables.
Data transition is the described as the process by which member data and benefits, employer data and in some cases, scheme data are transferred to a new pension scheme. The timely, secure and improvement of data enables a smooth transition of contributions, investments and benefit settlement. The use of an independent specialist is cited as best practice.
A clear agreement is needed on who will manage and pay for the data transition and who will give data transition progress updates. All three areas of the data sets highlighted by TPR and Code of Practice 15 should be identified and reported on – 1. Common data applicable to all schemes, 2. Scheme specific data, and 3. Numerical data to aid understanding of the results.
A final report for the employer/trustee will also be needed to assess successful data transition on:
- Data transition completed
- Membership numbers transferred/reconciled
- Reconciliation of units transferred
- Reconciliation of bank account transferred
- Rectification plan outlining any potential data cleanse required
- Data quality score pre and post transition
- Employer data files are fit for purpose (protecting the quality of data and member service going forward)
The administrator will also need:
- An assessment of the quality of data, with appropriate data cleansing activity plans where needed
- A test plan for calculations and processes
- Reconciliation of data throughout including any data cleansing requirements
- Data and scheme information transferred within agreed timescales
Activities for the data transition are given in bullet points and include agreement of a blackout period together with contracts/agreements/signatory lists. A Model Project Plan for 180 days is given in Appendix A of the guidance. The sections 6.6. Data Validation and Data Cleansing and 6.7. Data Items are particularly useful on what to data to analyse for contributions, fund balances, fund choices, investment history, Lifestyling and Scheme unit and cashflow reconciliations, and listing all the key data sources.
Data mapping, test planning, reconciliations and assurance are outlined in sections 6.9. to 6.11.
PASA also give 4 useful links to other areas of guidance on how to keep good data:
- PASA Data Guidance
- TPR Record-keeping
- Code of Practice 15 Authorisation & Supervision of Master Trust
- DC Guide to administration
Asset Transition is described using three methods – 1. In specie (where the underlying stocks are transferred to the new fund manager as shares/gilts); 2. Re-registration of assets (funds held on a life assurance platform using same passive fund manager); and 3. Cash transition.
The need to not be ‘out-of-market’ for more than 3 days, impact of a blackout period on claim handling, and readiness for a go/no go call in a period of investment market volatility are highlighted.
The guidance can be found here: https://www.pasa-uk.com/master-trust-transitions/
Assure UK took up corporate membership of PASA in 2020 as it wanted to support the association in pursuing high standards of administration for all members, and welcomes this guidance. If you want to know more about how assurance and internal controls can be independently verified, please contact Gareth.Burton@assureuk.co.uk