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Selecting a master trust for Carillion’s defined contribution plans

Insights from the Pensions and Savings Conference 2019

Pension Board and Trustee Consulting|Pensions Corporate Consulting|Pensions Technology|Retirement
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December 3, 2019

When facilities management and construction company Carillion went into liquidation in January 2018, Dianne Day was responsible for ensuring its defined contribution (DC) scheme members found a safe harbour.

Independent Trustee Services was appointed in June 2018, with Dianne as lead director. Her role was helping to close the DC schemes and selecting a master trust to run them on an ongoing basis. During the subsequent transfer process to Willis Towers Watson’s master trust, LifeSight, she learned a great deal about what can make or break a successful DC change process.

Carillion’s defined benefit (DB) schemes made most of the headlines, but the company also had three DC schemes. The largest had £270m in assets under management, while the other two were much smaller.

The good news was that Carillion’s trustees had kept some money in reserves. “We received that, plus some money towards our ongoing costs,” explained Day. “I never spoke to the previous trustees about why there were reserves in place – but if you have a weak covenant, it is a really good idea,” she added.

Unfortunately there were some historic invoices that had not been paid. “Overall we knew there was going to be a deficit and it was pretty unavoidable that there would be a deduction applied to members’ pots,” said Day. She was very conscious that every penny the scheme spent would come out of members’ pension funds, and in that context, was very mindful about each communication the scheme sent, questioning whether each one was truly essential.

Choosing a master trust

Day and her colleagues selected LifeSight for a number of reasons. “It came down to what fitted the members best,” she explained. “Something that was significant about this group of members is that they were all orphans with no future contributions – you talk to them differently, you don’t really want to talk about the employer, for instance. The trustees of LifeSight had a customized governance and engagement strategy for orphan members.”

Carillion’s membership was skewed towards an older population. “LifeSight had a good selection of retirement choices and support through the retirement phase,” added Day.

The scheme’s default was still to target annuity purchase at retirement. Day and her colleagues decided to take the opportunity to review that, in the context of pension freedoms. With Lifesight, scheme members could benefit from a more modern scheme design. “Investments were realigned to drawdown for the majority at the point of transfer, at nil cost to members,” explained Day.

Dianne Day discusses how she selected LifeSight for Carillion’s DC plan transfer
Dianne Day discusses how she selected LifeSight for Carillion’s DC plan transfer

A learning process

Day set out with a set of basic principles for how she wanted to communicate the change process to members. She wanted to be very transparent about the unfortunate fact that the transfer and wind-up process would involve some cost to members, but also to reassure them that after the transfer was complete, their money would be protected.

It is vital to collect personal e-mail addresses when an employee leaves a company, plus collect them from current employees”

Dianne Day

“Finally, we wanted to show them empathy – they were either losing their jobs or moving to a new employer and we wanted to tell them we understood their situation,” said Day.

She learned some valuable lessons, which may help other schemes embarking on change processes, albeit hopefully not in a distressed situation.

Learning one: the value of personal e-mail addresses. “We wanted to talk to members, but we couldn’t because the administrator held no personal e-mail addresses. Work emails did not work!” said Day. As a result, at the start of the communications process, all she had to work with were paper communications.

“It is vital to collect personal e-mail addresses when an employee leaves a company, plus collect them from current employees,” she suggested.

Learning two: members look forward. In the initial letter to members, there was a lot of information to convey. Members’ pensions were transferring, some money would be deducted in the transfer process. “I expected the key member questions would be all about the deduction, but the big question was, ‘Who is LifeSight? Where is my money going, who is looking after it?’” said Day. Members wanted fund factsheets, information about their choices. They wanted to know that their pension was secure.

“It is easy to get into the past and how and why we got there. But actually, they wanted to know about the future,” explained Day.

Learning three: members’ first reaction was to go online. “We didn’t have a budget to manage communications through all online channels, but it was clear that online and social media platforms were often their first ports of call,” explained Day. As these have become increasingly important, schemes conducting change processes in future will need to consider how they manage social media messages.

Learning four: customise the message. Through LifeSight, Day was able to make the messages more relevant to Carillion’s members. Simple changes of language made communications sound far more targeted. “Your employer has chosen LifeSight as your new workplace pension” became “You have transferred to LifeSight from your previous scheme”.

Learning five: professional project managers are heroes! Project managers are essential to any change project, Day argued. “They create a sense of urgency and commitment. They encourage trust between the ceding and receiving team. They do put pressure on you to commit to dates but the planning, once it comes off, is fantastic.”

Next Chapter: Are your members sleepwalking into retirement?

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David Bird
Director, LifeSight

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