Introducing Aviva's Retail Master Trust

00:00:00 Video starts

00:00:21 Stephen Rice, Propositions Lead, Aviva Life & Pensions Ireland

Hello and thank you for joining us for this Aviva Master Trust update. Throughout today's session, we're going to cover off a little bit about what a Master Trust actually is, some of the features of the Aviva Master Trust, some information around the contribution types that you can make to a Master Trust and indeed the tax reliefs that are available and also some other information in relation to your pension that you need to consider. And finally, we're going to discuss some of the full suite within the Master Trusts, including the My Future default lifestyle strategies.

I'm delighted today to be joined by Claire Louise Murphy who is our Corporate Pensions propositions Manager and Peter Smith from Aviva Investors who is their senior investment specialist. Aviva Investors manage a number of the funds within the Master Trust including the My Future ranges.

You're very welcome. Thanks Claire, I might come to you first. I suppose so, Look, one of the first things is what is an actual Master Trust.

00:01:12 Claire Louise Murphy, Propositions Consultants, Aviva Life & Pensions Ireland

Sure, look a Master Trust is simply a multi-employer pension scheme. It's written under one trust arrangement. There was recent pension legislation updates which introduced requirements for Master Trusts in Ireland.

00:1:26
Very good. look if I'm a member of a Master Trust, what does that actually mean for me as an employee of a company.

As a member you'll actually benefit from the multi enhancements in the Master Trust, so enhanced investment regulations. There's much better and much more detailed pension benefit statements which you'll receive. There is enhanced trustee governance and then there's also enhanced risk and audit functions as well. So if you were previously part of a group pension scheme and you might have moved into the Master Trust, then the changes that you will see is that your trustee will have updated  it to the Aviva Master Trust. However, all of your other scheme benefits, your charges, your contributions, your fund management charges, anything like that will remain the same.

00:2:14
And I suppose one of the big things in the Irish industry in particular, historically, would have been that employers would have acted as trustees on pension arrangements. From an employer's perspective, what are the benefits and what does it mean from an employer moving into this Master Trust world?

Yeah, well in particular if the employer was the trustee, they no longer have to meet the trustee requirements where there was training and things like that. So basically the Master Trust has taken away all of their governance liabilities and the Master Trust looks after all of that, all of the audit, all of the risk governance as well, so much the same as the employees as well. They will receive the same benefits through the Master Trust enhancements.

Perfect. So I think for both employees and indeed for employers it provides that comfort. I guess that they have really significant oversight and governance around there. They're generally removed from the responsibilities, from them. And I suppose look over the last while we've heard there's been lots of talk in the media about changes to the pensions landscape in Ireland be it true. They moved to Master Trust you've discussed there and but also there's this this kind of word of auto-enrolment that keeps creeping up every so often maybe can you just describe some of the differences between a Master Trust and auto-enrolment or are they the same thing.

They're not the same thing however they both actually plan for retirement benefits, at retirement. So a Master Trust is for existing scheme members part of a group pension scheme or for even employers that set up a new Master Trust. That's for employees that are already in employment that have pension benefits.

00:3:48
Also auto-enrolment is actually something that the government are planning to introduce, and this will be for employees that don't have any pension benefits in place even though they're actually in employment and paying tax and PRSI. And I suppose look one of the things obviously being talked about today is around the Aviva Master Trust and the funds and how they actually operate and what Master Trusts are. And I suppose there's a lot of talk as well recently about the social welfare pension and changes in that. And I suppose one of the big questions we get asked quite a lot is, can you still qualify for the state pension and what that looks like if you have your own private pension provision as well.

So maybe can you just provide a little bit of an update on that?

Yeah, of course. And look the, the state pension has qualifying criteria and a big part of that is actually your PRSI record. Now there's different payments of the state pensions. So the current full state pension is €277.30 per week or €14,419.60 per year, but this isn't guaranteed, and that is the full pension as well. So the government actually rely on the PRSI contributions to contribute. That's what actually funds the state pension and it's predicted that there's going to be more people in retirement by 2050 than actually in employment i.e. they won't be paying PRSI, So you know the current rate of the state pension might not be sustainable.

So I mean I think that's a really interesting point and we've heard that statues a little bit around the shift from those who are paying PRSI versus those who may be benefiting from the benefits of paying PRSI for a long time. So one of the definite big benefits about contributing to a pension scheme, the other side to it is around adequacy and you know will my pension be of a value to me when I retire and making sure people are aware of that. And I suppose, you know really one of the big questions is how much should people be paying or saving into their pension or any kind of talk around that.

Yeah. Well, look, I mean each individual is very much on an individual basis, you know and people will have had different employments, they took different salaries, they have different pension pots and things like that.

00:05:55

In general people are living a lot longer than they were at say 75 years ago. People are living like 20 plus years on average past retirement age. So they have to have to fund for that as well. So I mean if you could take your retirement salary and use 50% of that as a base guide and then if you take away from that the state pension benefit that you'll be getting plus then take away from that as well what you'll be getting through your Master Trust benefits that will identify if there is any gap to be funded for but hopefully that will replace the 50% of the salary.

00:06.25

I think that's a really good and simple calculation that everybody can actually do and people should be encouraged to do that on an ongoing basis. And I think just taking it back to our old Master Trust, the Aviva Master Trust for a minute and I suppose people are looking for information and trying to find out what the value of their Master Trust is can you tell us a little where can people find information.

00:06:52

Absolutely. Well, as a member of a Master Trust, you should have been automatically being given access to our online portal, and on the online portal once you register, you'll be able to see all of your pension information, the fund values, your contribution rates, any transfer history, who the trustee is, all of your general details. In addition, then on the portal there's links to the Aviva Fund Centre. So you'll be able to see on your portal what funds you're invested in and then you'll be able to go to the fund centre and look at fact sheets or performance or you can do comparison tables as well. And of course, as always you can speak to your financial broker or your employer about your own pension benefit details as well.

Then I might just put you on the stop a little here. Two big things that we often get asked about are fund switches, how they can actually be facilitated. And then secondly is how people actually go about maybe changing their contributions or looking at their contributions can you just touch on those two points a little bit?

00:07:52

Yeah. So for the funds switch first of all you should really speak to your financial broker and they will be able to organise that for you and they will be able to discuss and be able to give you all the details about the fund options that are available to your particular scheme. So then with the contributions and any changes or anything like that, every pension scheme is subject to contribution limits which are usually set by the employer and then the fund choice might be individual per scheme as well. So you do have the option to change them at any time. Obviously after speaking to your financial broker who will be able to discuss the best option for yourselves. If you are not able, if your employer limits that and have set it that you can't increase your contributions, you can actually invest in what's called an added voluntary contribution or an AVC for short Instead.

00:08:42

You know there's two things for me in terms of why people should save for retirement. The first is we've touched on a little bit. That is definitely making sure they have adequate income in retirement and supporting the state pension. The second is that there are, quite generous tax reliefs still available from the government on pension contributions. And maybe you might just talk to us a little bit about some of the tax reliefs that are available and how that actually works in practise.

Yeah look your pension scheme is probably going to be the longest, most tax efficient savings plan that you'll ever have in your life. And there's three tax reliefs available. One on the way in is through your contributions. If you're a 20% income tax payer, you'll receive 20% tax relief on your contributions. Equally every year, 40% taxpayer on your income you'll receive 40% tax relief. So for example, if your contribution was €100.00 a month, you're a 40% taxpayer, the net cost to you, is actually only going to cost you €60.00 for that contribution. The second then tax relief is actually during the lifetime of the pension your earnings grow tax free when you're saving in a pension. So just to put that in a bit of context, if you were saving for example, in another financial institution, a bank or credit union or anything like that, any growth is actually subject to dirt tax, which is currently 33%. But you don't actually pay that at all ever when you're on your pension growth, anything that you make on your investment. And then lastly, on the way out or at retirement, everybody's entitled to a tax free lump sum and this is up to €200,000 and that's a lifetime allowance and that's per individual. So lots of very tax efficient ways of savings being made in your pension.

00:10.27

Perfect. I think that is really important for people to understand the tax relief and the actual out of pocket cost of making a contribution that if you're making a contribution of X amount it's because of the tax relief, it's actually greatly reduced. whether you're on the higher or indeed the marginal rate of tax. And you know one of the things that you’ve kind of touched on already is around additional voluntary contributions and you've also touched on the fact that schemes themselves will have set limits both from an employee and an employer level. And we do see an awful lot of people looking into that additional voluntary contributions space, particularly as they get a little bit closer to retirement and they're looking to try to maximise the value of their pension. Maybe just give a little bit more information about how that actually works in practise.

Yeah, sure. Look, I mean, you can actually contribute either on a regular basis or on a one-off basis into what's called an added voluntary contribution or AVC. This is additional contributions to your main scheme as well. Your employer does not pay the contributions into your AVC and there can be a different fund choice under your AVC.

00:11:30
You don't have to go with the same fund choice as your scheme. It's commonly used to actually boost that €200,000 tax free cash allowance per person, but there are thresholds as well, so they go by age limits, so they're on your pensionable salary. So up to age 30 you're allowed to contribute 15% of your salary into an AVC. It goes on tiers then and goes up to 40% when you reach age 60 and above. It's never too late to actually invest in an AVC as well.

00:12:03
AVC's also actually have the same great tax efficiencies and they are subject to the same tax reliefs as your regular contributions. As with making any of these decisions, there's a lots of considerations, but you should definitely have the conversation with your financial broker to advise you on the best route.

00:12.22

Yeah, I'd absolutely agree that the financial brokers the schemes financial brokers have a really important role to play. One of the things again that we get asked quite a lot and that comes up quite a lot in conversations I'm sure you do too with brokers and scheme members. That is, the fact that we recognise that people don't tend to stay in the same job for life, they tend to move around jobs. I think there's lots of services out there that say younger people coming through have up to 14 jobs throughout their working life cycle. People are working a little bit later. The big concerns are that I have, is to make sure that people are actually aware and track the pensions that they have from previous employers. And one of the best ways and obvious ways to do that is to consider consolidating your old pension benefits into maybe your new Master Trust or your new scheme, which just means that you know exactly where your money is. You can keep track of all your funds in one space. You might just give us a little bit of an outsider detail on what consolidation benefits actually are and what are the benefits, the pros and cons of it.

00:13:14

Absolutely, as you said, you may have had a previous employments and with those employments you may have actually been contributing to a pension. If you were, and you've left those employments, you’ve become what's called a deferred member. This means that your payment is deferred until that particular scheme has reached the age at which they have agreed to pay your pension benefits. So you have the option then to transfer, basically those schemes into one Master Trust or into your Aviva Master Trust but there's lots of considerations as well, as you said, there's lots of pros and cons.  Some of the pros that the Aviva Master Trust might have lower management charges, they may have benefits that the previous scheme with your previous employment didn't have. They might have additional benefits under the Aviva Master Trust that previous scheme didn't have. And as you said you have one set of retirement papers to complete which doesn't seem like a big deal until you have to complete six of them.  

Some of the cons then as well there's potentially early exit charges or penalties that occur on the previous employment, there could be guarantees as well with the previous employment for the pension scheme and they will be lost on transfer as well. The other scheme, the previous scheme could have additional benefits that the Aviva Master Trust doesn't have. Again what’s both a pro and con that fund management charges might be better with the previous scheme. It's definitely another one of those considerations that you'd have to discuss with your financial broker and before you take any action to consolidate your pots.

00:14:56

Yeah, look that's really good advice. I mean I guess what I'm taking from that is that it's not a one-size-fits-all type approach, if nothing else I think it's really important for members to know and track on an annual basis where their pensions are. Be aware if there's any changes in Trustees or any issues that might impede them accessing their benefits at a later point in time.

We spent the last bit of time talking about the kind of pre-retirement whether it's what a Master Trust actually is, the tax benefits and obviously consolidation and considerations but for those who are maybe getting a little bit closer to retirement, are coming up to retirement, what are the actual options available to people at retirement and in terms of the benefits they can receive.

00:15:38

Yeah. So again because your employment record and your savings pot are very individual to you it depends on the salary and service that you have had with your employer and what the fund value is of your pension pots, when you come to retirement. There's a couple of different options. One of them is called salary and service and basically this pays a lump sum and the balance then has to be invested in what's called an annuity. An annuity is a guaranteed income for life. Another option is to take 25% tax free cash and invest the balance 75%, into what's called an approved retirement fund or an ARF for short. That is like an investment bond that continues on. But again, it's very individual and everybody's going to have different lengths of service and things like that. So speak to your financial broker for the best advice.

00:16.31

Yeah. Look and thanks again for that Claire really good overview of the Master Trust and some of the key considerations and I definitely think you know from just listening to you there the schemes financial brokers are play a really important role not just for the employer but also for the individual members throughout their savings life cycle.

Peter just to bring you in at this point obviously the Aviva Investors are one of the main fund managers on our Master Trust including the various different multi asset ranges and the My Future range but you might just start with giving us a little bit of an overview on who Aviva Investors are and, I’m conscious some people may not be familiar with you so maybe just to touch on that to start.

00:17:14

Peter Smith, Investment Director, Aviva Investors

Sure, absolutely Steve, Aviva Investors are the Investment Management arm of the larger Aviva Group. The Aviva Group, you know 325 years of heritage going back that far where our responsibility is basically managing the investment assets that come in from our clients, members, policyholders and those assets currently are valued at about 250 billion. We're one of the largest investment management businesses in the UK and Ireland covering a broad spectrum of assets, from cash to bonds to equities. And today we'll probably be focusing more on some of the multi asset funds that make up that mix.

00:18:04

Yeah, no, definitely there's the multi asset across the new schemes coming in and indeed existing members as well, they are definitely the predominant asset class exposure for the Master Trust and we might just start with touching on, My Future.

So My Future is our default investment strategy for both Master Trusts that we have the Retail and the Corporate which you might just give us a bit of an overview on, what is the My Future strategy and how does it works.

00:18:30

Sure. My Future basically is an investment strategy that a member holds throughout their career or throughout their life cycle of their career. They're basically an automatically adjusted strategy depending on the age of the member throughout their career until retirement, so you kind of built on three different phases, this slide here details that in a nice way.

00:19:00

That first phase is that growth phase so when a member is more than 15 years out from retirement, they will hold a mix of equities and bonds which is more leaning towards equity. So that growth that a member needs to generate a return over the period of their career they have that time, they have that time horizon where they can hold more equities than bonds which tend to be a little bit more volatile in the shorter term but tend to generate strong type of return and then the My Future automatically begins to, (15 years from retirement) begins to what we call de risk, so it begins to move out of that 80% in equities, 20% in bonds that fixed ESG-80 fund that's on this slide and it begins to de risk into what we call our ESG fixed 20 fund which is a lower allocation to equities. It's only got a 20% allocation to equities and an 80% allocation to bonds so over the next 10 years in phase two, what we call the consolidation phase, you're managing or we're managing to automatically adjust members journey of their investment strategy towards retirement. Five years out from retirement, the member will hold the fixed 20 fund which is a 20% allocation to bonds or 20% allocation to equities and an 80% allocation to bonds. And the third part, five years out from retirement, as Claire mentioned already and she mentioned that you, a member, all members have very different requirements. Five years out from retirement we're offering the three sort of very different types of journeys that a member can end up with at retirement. Those as Claire mentioned the ARF, the approved retirement fund and annuity where you're basically buying guaranteed income or cash, so from five years out, again the My Future automatically glides a members investment strategy towards either an annuity or a cash fund.

00:21:07

Thanks. I think the two big takeaways for me in relation to My Future which are nice for members and indeed employers looking for a suitable default for their members are one is that the actual asset allocation of the money, the funds that are invested in are managed professionally. But secondly and importantly as the glide path and the de risking is taken care of so that members don't have to worry about whether they're invested in the appropriate mix of assets as they get closer to retirement. That's all done automatically in the background, which is, is really good. And you've mentioned that indeed it's highlighted on the slide there about the fixation that the Fixed 20 fund, the fixed allocation funds. Can you just give us a little bit more detail in terms of what they actually invest in under the hood?

00:21:30

Sure, absolutely. As I mentioned there's the Fixed 20 and the Fixed 80 funds and these are simple and straightforward transparent sort of multi asset funds that have a predetermined weight to equities and bonds. So those weights don't change. Then we have a fixed 80 which a member will hold until 15 years out from retirement which basically has an allocation to 80% equities. Those equities are benchmarked to their indexes, the MSCI World Index, which is an index of over 1000 companies, some of the largest globally, the likes of, an Apple or a Microsoft is held within that fund and what we're doing as manager, what our main element is to provide the return of that index, which is the MSCI world.  If you look at 2023 the MSCI world was up close to 20%. What we're trying to do is give a return which is in, as close as possible to that, so it's a passive type investment strategy and then similar on the bond side and it has a benchmark of a global bond fund, so the Bloomberg Global Aggregate Bond Index which is a mix of government and corporate bonds and what we're doing again is managing that in a passive nature to provide a return very similar to that bond index. So, in many ways these funds are know they're transparent in nature they are also offered at a reduced fee to our standard fees, so members get these other reduced fees too and they have ESG which is something that is becoming more apparent and more a requirement for funds.

They have ESG built into the investment process and that's in line with EU regulations around ESG and a term called sustainable finance directive and that's these are managed to Article 8 standard within that directive.

00:23:41

And I think definitely the ESG environment social governance perspective is something that we're seeing more and more coming from an employer's perspective as well and from financial brokers who are assisting employers in relation to looking at default strategies. So it's nice that these are complied with article 8 or the light green side and you touched a little bit there in terms of the benchmarking and against the MSCI etc.. and I guess the one thing that we're always very conscious of is you know how the funds performed over the last 12 months and what's the kind of take around that for us in expectations from your perspective.

00:24:17

Yeah, sure. I mean let's talk about expectations. When we started in 2023 and maybe some of the returns that are on this slide, we weren't expecting, we were dealing with an environment where inflation was high, interest rates were at historically high levels, but in general markets have been pretty resilient and company earnings have been very resilient and you know even as we reached the end of last year certainly with interest rates peaking, the markets felt that the recessionary fears that we had during the year might not actually be as severe as first thought so as you can see on this slide, the Fixed 20 fund over the one year of 2023 was up 8%. Probably that's a stronger return that we would normally expect for a low risk type strategy like the Fixed 20 fund, but still a very strong return in 2023.

You can see on the other side that fixed 80 fund which is 80% in equities had a very strong return in 2023 up close to 16% driven a lot from that equity content that it has in there. The equities within that the 80% were up close to 20% in line with that index that MSCI World Equity Index, so in summary returns have been strong in the year which is really good for members as you can see this is the return that they would have received as a result of investing in the underlying strategies that make up My Future.

00:25:48

I think just looking at the returns there and looking at the bigger picture, you know obviously these are long term savings plans and from a member's perspective on the passive basis that it's nice that they have something that they are benchmarked against, the MSCI if people did want to track them but also as well that they aren't I suppose, that they're just they're designed to provide that kind of longer term in line with markets, nothing kind of exceptional, just keep tracking the markets and where somebody is saving for long term that's a really big comfort that they should take from that, that they have that kind of very clear line of sight and they won't deviate or shouldn't deviate from that. Absolutely.

And look the fixed allocation funds which obviously we've discussed that underpin My Future are some of the funds that are available and it's obviously to say from a Master Trust perspective they are available in standalone funds as well as part of the My Future strategy and there are other multi asset ranges available and indeed we've a lot of members who've moved into the Master Trust this year who would have been existing customers of Aviva and we've some employees who are obviously looking at alternatives to My Future with a fixed allocation funds as well. There are the active and the passive plus ranges that are managed by Aviva Investors as well. Can you just give us a little bit of an overview as to what those two ranges are?

00:26:59

Yeah absolutely. I mean we spoke about the fixed fund range which as you say very transparent, passive in nature, long term, long term view on markets and we also have our passive plus multi asset fund and our active multi asset fund. Both of these are risk targeted. So you can go into specific funds which target a low level of risk and medium level of risk and a higher level of risk. And both of these differentiate from fixed really around the diversification of assets built into them so the fixed funds, I mentioned before just equities and bonds both of the passive plus and active funds have more assets in them. They have high yield, high yield bonds in them. They have emerging market debt, they have alternative assets in them so that kind of differentiates both of these from the fixed funds.

What differentiates passive plus from active really is that the passive management style of passive plus and that's at an underlying level. So it predominantly invests in passive like structures, underlying funds, but also the asset allocation is kind of set. So it's not changing too much over time which is very different to the active style. So the active style, we are as manager making decisions in shorter term decisions based on what we view the markets are doing at a certain point in time. We may be overweight, we may hold more equities at the moment because we feel equity markets are poised to do better than other asset classes there. But that's the real difference between the passive plus multi asset fund and the active is that you have this sort of active decision making potential for outperformance as well on the active side because of that. But we're making ongoing active decisions on the building blocks held within the active fund and the other part just to mention is around ESG.

00:28:47

These are both ESG funds and ESG compliant in line with Article 8 of SFDR. From a cost perspective, the passive plus funds are 5.05% less than the standard pricing. So another thing to note around them from a performance perspective again when we look over the one year number across the board you can see here on this slide, passive plus 3-4 and 5 depending on the risk level of the fund determines the outcome return perspective too. And you can see over the one year numbers passive plus between 6.5% and 14% and pretty much 15% returns across that range for active again between 6.5% and 13% return over the one year. So strong markets in 2023 for members and you can see here the returns that we've generated among our multi asset funds over that period.

Thanks Yeah look I think it's really interesting looking at the three ranges because I suppose I'm obviously very close but the more I actually look at it, when we talk about this thing of choice for members and choice for employers and indeed financial brokers supporting schemes. I think it's quite evident there that the three ranges, the fixed allocation funds, the passive plus and indeed the active funds really do provide genuine choice and diversification. It's not just three ranges doing the exact the same thing which is really important from an Aviva Investors perspective.

00:30:14

So thank you so much to Peter and Claire. Lots of really useful insights into the Master Trust world, but also in terms of key considerations for pensions around contributions, tax relief, etc… and also around the fund ranges that sit within our Master Trust and the choice and diversification that they offer. I guess for me the key takeaways are first of all that a Master Trust really provides comfort that someone's pension benefits are being managed in a strong governance, strong oversight and indeed that there are a range of professional firms involved in providing that oversight and governance with specialities in different areas. And second is that it is really important for members to understand what contributions they're making, what contributions they can make and where they have older legacy benefits that they understand how and where those benefits are. And the third thing is that yes My Future is our default lifestyle strategy and is suitable for a lot of members who want both a passive management of their money and a passive engagement and how their money is managed over time. But there is lots of choice out there and people can make different decisions for their additional voluntary contributions versus their main scheme contributions. But above all else is that it's really important for employees to have access to the schemes financial broker and your employer can provide details on the financial broker for you to talk to you. Any questions about current benefits or indeed legacy benefits, we have lots of resources available on our Aviva.ie website and below. So please do look at those as well.

00:31:46

And finally, we do want to make these sessions as informative and relevant to members and employers as possible. We do have a short exit survey. We'd be delighted if you complete that to make sure that the future sessions do meet those relevance criteria and to keep you informed on areas that you want updates in relation to pension benefits so again, thank you very much for viewing this and please do contact your Schemes Financial Broker for further details.

00:32:11