Multi-employer fund TPT Retirement Solutions is planning to launch a new defined contribution proposition as master trusts jostle for market share. The new products are designed to make the retirement process easier for people and protect their retirement income from the impact of cognitive decline. 

 

DC has not had to provide income for UK retirees at scale to date, so the pensions industry is still grappling with how to link up a pensions accumulation phase that is automatic and easy with a retirement phase that requires member engagement, guidance and decisions about large sums of money – so that it will last for what is an unknown period of time. 

 

 

One of the industry participants that has been thinking about the at and post-retirement experience is TPT, the multi-employer provider that spans defined benefit and DC and which appointed a new chief executive in January. Now, its DC director Philip Smith says it will launch a new at-retirement solution in the fourth quarter of this or the first quarter of next year. 

 

“What we try to help people do is to really simplify that process for them,” says Smith. 

 

“We think that will be a pretty unique proposition in the market, it’s aligned with [Pensions and Lifetime Savings Association] best practice,” he added, meaning that as people approach retirement, “they shouldn’t have to take really complex decisions, they should be able to do it without advice and protect against cognitive decline”. 

 

The proposed solution would act as a quasi ‘default’ or ‘pathway’ that would aim to provide an inflation-linked retirement income until an end point of age 95.  

 

“At the end of that period we are aiming to have a small pot left worth about three years of income,” Smith explained, saying that this approach should cover most people. According to the Office for National Statistics, in 2020, the most common age at death in England and Wales was 89.3 years for women and 87.1 years for men.
 

   

Based on the size of the individual pot, TPT would offer a starting retirement income for the first year that then, it is envisaged, moves with inflation. The inflation-linked ambition is based on an assumption of the returns TPT claims it will be able to generate. These returns could come from real assets, alternatives, infrastructure or social housing, says Smith. 

 

He adds: “We are actively considering social housing and sustainable agriculture as next areas we are looking at." 

 

 

Given the risk of underperformance, how these new offerings will be communicated to the 300,000 DC members – about two-thirds of them female – and how members take their decisions will be key, he admits.  

 

TPT is undergoing a digital transformation programme at the moment designed to help with this. 

 

“We'll be putting all tools members need into a digital solution that will make it clear and easy to understand. We’ll be very careful and considered in the way we communicate this to people... Member understanding is going to be really important,” says Smith.  

 

The way TPT will make the transition from accumulation to decumulation easier for people is by offering a whole of life fund that then moves into drawdown at retirement, flipping assets to income production. 

 

In contrast, TPT’s current accumulation default is a series of target date funds with a terminal date of 65 for most people, providing a traditional glidepath that aims for low-risk assets. It is on a platform with Phoenix, which manages the funds, while AllianceBernstein appoints underlying investment managers for TPT. For a fee, members currently have access to a drawdown service provided by Mercer. 

 

Alongside the planned new flexible income drawdown stream, the master trust is hoping to give people the option to put money into rainy day or inheritance pots. 

 

As a secondary option, TPT will also offer a drawdown strategy that a member can then turn into an annuity between 75 and 80.  

 

“We think that’s when people are going to need protection against cognitive decline,” says Smith. 

 

 

The move signals TPT’s desire to profile itself in a market that has been hotting up as master trusts seek to stand out to the fast-growing number of employers looking to outsource their DC arrangements following a slew of new DC governance requirements. 

 

TPT currently has about £2.7bn of assets in DC. This is against a backdrop of 36 master trusts managing a combined £78.8bn, in a market where further consolidation is expected. TPT ranks somewhere in the middle in that market in terms of assets, and slightly higher in terms of membership. The provider is potentially vulnerable to some employers moving their DC section elsewhere should their DB schemes reach buyout funding level, as several have no more active DB members. 

 

The majority of master trusts already offer in-trust drawdown to members, says Ian McQuade, a director at governance specialists Muse Advisory. They have a clear incentive to keep assets in the trust, and the much lower fees for drawdown within master trusts has meant even some own-trust schemes put in place a preferred master trust for members wanting to go into drawdown.  

 

Some have innovated on the product side, too – or are trying to. “There is a lot of talk about deferred annuities, but they are not very appealing to a member,” says McQuade. 

 

Despite this, some master trusts split the member’s funds into ‘buckets’, with a portion set aside to buy an annuity at age 80, he explains.  

 

“That allows the rest of the pot to be managed more sensibly as a drawdown pot, with a fixed end point in mind. However, the member needs to drive this.” 

 

As for master trusts aiming for inflation-linkage in drawdown, “there is nothing to stop them offering this and increasing the amount being drawn down each year in line with inflation, but there need to be regular reviews as to when the pot is likely to run out”, he says.