Value for Money with a Master Trust Pension Scheme (Sponsored)

Mark Bowers, Senior Corporate Distribution Manager at Zurich Life, outlines the key questions an employer should ask to understand the real value their pension scheme is adding to employees.

At Zurich, we believe there are three core areas in delivering good outcomes from an employee pension scheme: consistent investment performance, effective member engagement, and a robust process and governance framework. 

Having financial security in retirement is one of the principle worries an employee will have. Today, we see more and more employees looking to their employer to help them prepare for long-term financial security. So much so that retirement planning has become the fundamental and integral part of company wellbeing programmes. Of course, one of the challenges a Defined Contribution (DC) saver will face is that they can only maximise their future retirement income if the scheme they contribute to delivers ‘value for money’.

In DC arrangements, whether in a single trust or as a participant in a master trust, an employee’s retirement income depends on the level of contributions and the performance of investments. Most employees take a hands-off approach when it comes to investment decisions and rely on the scheme’s default investment strategy to achieve their income replacement goals. The investment strategy and its ongoing performance are, therefore, critical elements for employers to consider as they heavily influence member outcomes.

When it comes to the first of the value-for-money core principles, consistent investment performance, the following are some key considerations to keep in mind: 

• Investment performance has always been the key driver of pension adequacy. You should be asking yourself if the fund performance delivering what was hoped, and why and how the default strategy is performing against its peers, particularly in the important growth phase. Looking under the surface at how the investment manager performs during the growth stage can be very enlightening. Navigating the good times and bad times through the full market cycle is where investment managers can really add value – and if this isn’t happening as you thought then questions should be asked. It is the compounding effect of returns that has a transformative impact on DC members’ pension adequacy.
• Member engagement with regard to their investments drives understanding. More questions you should be asking are if the employees engaged, how accessible and proactive the stakeholders are in supporting employees to enhance their financial wellbeing, and do employees understand how their savings are invested and the impact of any investment decisions they make.
• How aligned is the pension with your organisation’s beliefs and plans and how is environmental, social and governance (ESG )integrated? Incorporating sustainability into business is an increasing priority for employers, and we are finding that employees are now also challenging employers to offer a pension that invests responsibly. This has become more apparent of late but poses questions as to what the investment manager is doing and demonstrate what real impact their investment approach is having on a sustainable future.
• What are the objectives and mechanics of the default strategy you are offering employees? What are the underlying funds and how, and over what time frame, does the strategy de-risk? Is it a one-size-fits-all approach or is there flexibility within the strategy to allow members tailor their own investment journey, perhaps the risk/reward balance and/or benefit mix?
• A strong track record of out-performance demonstrates effective management underpinned by a robust process and governance framework. How consistent is the investment manager’s methodology and process? Is the process proven across the full market cycle? 

Today in Ireland, most DC pension scheme assets are invested in active multi-asset funds. Good active investment management adds greater value than passive/indexed management funds to members’ pension pots. This is achieved through consistent investment out-performance while at the same time making a positive impact on society through active ESG integration.

A key reason why Zurich has been voted number one at the Brokers Ireland Financial Excellence Awards for investment excellence for the last seven years is down to the consistent out-performance of our funds which are managed using Zurich Investments’ active top-down process. This tried and tested process operates within well-defined risk parameters to repeatedly give strong member outcomes. 

People retiring with Zurich have enjoyed better retirement pots as a direct result of our better investment returns.¹

• Prisma 5, the underlying fund in the growth stage of our DC investment strategy, Personalised Guidepath, has produced outstanding annualised five-year returns of 11.9%.²
• Zurich’s long-standing Balanced Fund has given an annualised return of 10.1% over the last 30 years.²

Zurich provides a range of solutions to meet employer needs, whether through participation in the Zurich Master Trust or on a standalone trust basis. If you would like further insights into how Zurich supports employers and trustees to provide value for money to members, please contact Mark Bowers on 01 209 2299 or email him at
mark.bowers@zurich.com.

^* Source: Brokers Ireland, Financial Excellence Awards, 2021.
¹ Source: Zurich Life & MoneyMate, December 2021.
² Source: Performance figures are provided by Financial Express, to 31/12/21. Annual management fees apply. The fund growth shown is before the full annual management charge is applied on the policy.

Zurich Life Assurance plc is regulated by the Central Bank of Ireland.

The return is based on an investment in the fund and does not represent the return achieved by individual policies linked to the fund.
 

(This article is sponsored by Zurich)

Warning: Past performance is not a reliable guide to future performance. Warning: Benefits may be affected by changes in currency exchange rates. Warning: The value of your investment may go down as well as up. Warning: If you invest in these funds you may lose some or all of the money you invest.