The ITB Open Fund, for the UK’s industry training boards, has bought in all defined benefit liabilities and is now outsourcing the £36m defined contribution section ahead of a fund wind-up. The trustees are seeking a master trust to provide a default option for employers with members in the DC section, ITB being itself an authorised master trust. 

The trustees of the ITB Pension Funds Open Fund – a hybrid pension fund for current and former industry training boards – are in the process of selecting a DC master trust for employers who choose to use this, though the unconnected employers are not obliged to do so.  

ITB is itself an authorised master trust, and the wind-up of this will follow the rules set out by the Pensions Regulator. While the outsourcing of the DC section is expected to happen sooner, the wind-up of the fund could take until 2026 to complete. The ITB Open Fund had about £36.3m in DC assets and 1,600 DC members last year.  

The closure of the scheme was triggered by the fifth and final buy-in of the defined benefits of the ITB Open Fund with Just Group in July 2023 for just under £300m, after the fund reached a funding level of 105%. The scheme had already bought two policies in 2016 with Just and Pension Insurance Corporation respectively, and a further two from PIC followed in late 2017 and April 2018. The trustee expects to convert these policies into buyouts for the roughly 5,918 DB members, whose benefits are backed by roughly £732.4m in assets, within about two years. 

Given the DB sections will cease to exist, the trustees had to consider the future of the DC section and come to the conclusion that it would be best to hand this to an external provider. 

“ITB is a standalone company, we are employed directly by the trustees... there is just no logic in running a non-commercial master trust on that basis,” said pensions manager Simon Robinson.  

“We are formally winding up the DC section. At the moment we are in the process of tendering," he explained, which follows a scheme trigger event earlier this year.  

The trustees’ responsibility is to find a default provider for the existing contributions, which they will recommend to the employers, who are however free to choose a different option. Only last year, the trustees reviewed the DC funds and planned to change the allocation to the Legal & General Multi Asset Fund to the L&G Future World Multi Asset Fund to better manage environmental, social and governance investment risks.  

The wind-up of the fund will not be complete until 2026, probably in the third quarter, Robinson remarked, although “the DC section will go before then”.  

As the scheme is an authorised master trust, it has to follow a prescribed process, which includes completing certain requirements within a certain time. The trigger events of the scheme depend on the Pensions Regulator signing off the implementation plan.   

Robinson said: “It’s just something they need to do. A lot of timings from the wind-up will run from that date.”  

Running a master trust requires time, resource and cost, noted Mark Futcher, head of DC at consultancy Barnett Waddingham, and any ‘accidental’ master trusts will likely be looking to ease this, while the trustees also have their fiduciary duty.  

If it is decided that the master trust will wind up, there are two things to look at: securing the members’ assets; and the administrative elements.   

“The first is obviously vital to ensure that members are transferred to a home which is of equal or better value, which should mean reviewing the range of alternative master trusts,” Futcher said.   

This “can get complicated” if the master trust sponsor wants a commercial negotiation for the assets and members, he remarked, but should not strictly speaking impact the trustees’ decision.  

Such considerations around moving to a new master trust could come to the fore depending on the details of the new value for money framework, for example if the new regulations end up requiring trustees and independent governance committees to wind up poorly performing schemes. In a recent consultation on the new framework, the Financial Conduct Authority proposed that providers rated ‘red’ by their governance body must only “consider” transferring affected savers into an alternative arrangement, but it is also asking stakeholders whether it should require firms to transfer savers out of red-rated arrangements. The Pensions Regulator has urged trustees to respond to the consultation, anticipating that rules for trust-based schemes will look very similar. 

Futcher says more consolidation of own trust schemes to master trusts “is inevitable”, despite some companies having put on hold the outsourcing of their DC sections in order to use any DB surplus to make DC contributions. Master trusts have come up with ways to help clients with this, he suggests. 

Some DC master trusts are looking to accommodate employers with DB surplus by taking the surplus assets into the master trust and investing them as unallocated assets to be drawn from to fund the regular employer DC contributions, he explained.  

Master trusts that already have DB and DC elements “can also be useful here”, he noted.  

How is the master trust landscape changing?