Master Trusts more information

What is a master trust?

Simply, a master trust is an umbrella superannuation scheme under which any number of employers can participate, while still allowing each employer to tailor the rules of the scheme for the needs of their own employees. It is an easy and simple alternative to an employer setting up their own company scheme and trust deed.

In fact, a master trust is significantly more convenient and less onerous for employers.

All the responsibilities in terms of legal compliance, trusteeship, investment management and administration rest with, and are managed by, the master trust provider. What's more, the economies of scale that arise from many employers participating in the one scheme often result in reduced costs for each employer and/or their staff.

Master trusts generally offer a number of different investment options which means an employer can offer staff a much wider range of investment choices (including asset types, managers and investment styles), all within the one superannuation vehicle.

Why a master trust when there is KiwiSaver?

While KiwiSaver has portability that goes beyond the end of your employment relationship with someone, KiwiSaver locks savings away until the individual saver reaches the age of eligibility for New Zealand Super (currently age 65).

Some employers want to ensure that their employee's are financially equipped should they need, or choose, to retire early. Or, perhaps in the event the employee becomes redundant, in the twilight of their working life.

A master trust, which allows the employer to set the rules, can be used in conjunction with KiwiSaver in most situations.

Setting your business objectives

If you decide you might do something more than provide KiwiSaver for your staff, you will need to determine what scheme design, benefits and features will be included in your scheme. Aspects to think about are:

Will the scheme be in conjunction with, or will it be in addition to, your preferred KiwiSaver? You will need to remember that your employee has ultimate choice on which KiwiSaver scheme they wish to use;
Whether you will make any additional employer contributions or pay any costs/fees on behalf of your employees;
How much investment choice you would like to see offered to your employees;
What additional products and services you would like to add on (e.g. life or income protection insurances, medical or health insurance);
What benefits you would like to offer on resignation, on retrenchment, on retirement prior to age 65, ill health or death.

Some employers will find this exercise beyond their area of expertise. That's OK, as you can seek assistance from an independent professional consultant. You will need to pay for this service, but it's worth it to get the pay and benefits framework that assists you in attracting and retaining staff, or improving loyalty and productivity.

Key considerations and benefits

Once you decide your workplace savings objectives, the master trust provider will help you customise a scheme from the original master trust template, at the same time making sure the scheme remains effective and compliant.

So, while all master trusts have a similar framework they can be easily tailored by an employer to achieve the desired outcome for their business and their staff. Those tailoring considerations should include:

Eligibility - who will qualify for the scheme, e.g. full-time, part-time, casual, contract staff?

Contributions - are they required from employee and/or employer? Allowing for the legislated KiwiSaver contribution amounts, are there any minimum or maximum contribution amounts (both employee and employer)? Remember, from 1 April 2008, employers will be compelled to make employer contributions for those staff who elect to join KiwiSaver.

Vesting rules - when is an employee eligible to receive the company contributions?

Investment funds - which investment options will be offered? What are the choices offered by the master trust provider that will be made available to scheme members?

Withdrawal - in what circumstances can staff access their funds while employed by you, e.g. significant financial hardship?

Benefits - covering circumstances such as resignation, dismissal, early retirement, retrenchment, etc.

Insurance - wholesale group insurance benefits such as life, trauma and income protection.

Fees - covering aspects such as administration and service, investment management, trustee and transaction costs.

Remember, the master trust provider will also have experienced and informed staff who can assist in the scheme design.

Member communications, education and advice

Master trusts usually provide comprehensive communication services to members, including ongoing performance updates and market commentaries. Many providers also offer on-line access, so members can view their investment details at any time. Members may also be able to directly change the details associated with membership, such as updating address details or changing the choice of investment fund.

Together with the educational support from the provider, this interaction helps both employers and members gain a greater understanding of the benefits of long-term savings.

Of course, one of the most important components of successful saving is ‘advice'. Providers can provide access for members to seek specific advice in relation to their circumstances, although this may come at an additional cost.

How to choose a Master Trust provider

The process for selecting a master trust provider is similar to the simple 5 step guide we have prepared to help you choose a KiwiSaver provider.

Summary

Alongside KiwiSaver, master trusts offer a convenient and often cost-effective way to introduce workplace savings and staff benefits to a business. What is critical is that the right amount of care and time is taken in the evaluation, selection, planning and implementation of the scheme. That will help ensure the desired member take-up, and achieve the objectives of the scheme for all involved.