In our last blog (Transfer Binge – it’s not just about gilt yields) we commented that it’s okay to embrace DC, and not just because transfer values look too good to be true. But to do that requires a well-designed pension repository and a trust based scheme is very likely to provide that. We promised to outline the new, Trust based, DC arrangement that we have put in place for our own staff. Some details are provided below.
The new arrangement has been in place since late 2016, with an initial board of three Trustees, including one MNT. Legal advice and documentation was provided by Eversheds. Contributions can be paid by salary sacrifice and are more than sufficient to meet the auto-enrolment rules. As much information as possible is provided electronically, either by e-mail or by means of Quantum’s own award winning Benefit Options website, which has been applauded by Quantum’s clients who have used it. That website originally went live in 2011 and continues to be updated and improved to reflect legislative and member behavioural changes.
It is the retirement options and associated investment strategies that make QTrust stand out from the crowd. When the April 2015 pension freedoms arrived, many trustee boards had to decide whether to offer them or stick to the tried and tested annuity. Boards that elected to expand retirement options to include lump sums and drawdown then had to struggle with investments to back up those options. Various solutions have been adopted but, ultimately, a member’s investments need to reflect their chosen retirement route. QTrust offers the full range of pension freedoms, including annuities, with a full suite of investment options to cover each type of benefit. There are then three risk-rated versions for each type, to allow for a member’s own preference for growth/risk. All strategies use life-styling, in the usual way. For example, for members who want to cash in their pots, life-styling moves their investments 100% into a cash fund.
QTrust makes use of passive funds on an investment platform to keep costs low and, for the default, well within the charge. So much so, that possible future reductions to the charge cap are not a worry.
In terms of self-select, members can choose from the major asset classes in active and passive form, plus a couple of DGFs and a private markets fund for those who want to take a bit more risk.
The design of QTrust had no trouble in catering for members in retirement, as Quantum has offered a drawdown solution – called adapt – for its clients since 2008. This was based on the old capped drawdown rules, but this was a challenge to explain to members and sometimes time-consuming to administer. Therefore, QTrust uses a simplified version of adapt, where members choose a level of income each year at 3%, 4% or 5%, or no income at all. Suitable investment strategies have been designed which target these levels of income. It’s easy to understand and easy to run.
Our View: QTrust allows access to the pension freedoms at low cost – a good solution for our own employees and an efficient template for our clients.
In our next blog, we will focus on the sponsor’s perspective, including the use of buy-outs.
The QuIP Team