The rise of master trusts

AXA New Zealand explains why master trusts have been growing in the business superannuation market.

Tuesday, May 2nd 2000, 12:00AM

The business (employer) superannuation market is dynamic. Since 1990, stand-alone (also known as wholesale) schemes have declined in number by 58 per cent – from 2,242 schemes in 1990 to 1,159 in 1996 to 943 in 1998. Since 1996 stand-alone schemes have fallen in number by 18.6 per cent.

This trend is expected to continue as companies seek alternatives to wholesale schemes and look to provide more cost-effective staff benefits. Reasons for moving out of wholesale schemes include the cost of maintaining them, the imposition of trustees’ liabilities on employers, their relative inflexibility, a desire to provide employees with the benefits of greater choice.

Decline in wholesale schemes does not mean a decline in the market for employer-based superannuation. Currently worth $2 billion, the business superannuation market is expected to grow by at least $1.22 billion over the next three years, reaching a market total $3.12 billion or more by 2003.

The rise of master trusts

Master trusts have been the main beneficiaries of the fall in demand for wholesale schemes and funds inflow from wound up wholesale schemes or by transfer of assets to master trusts. A trend which, AXA New Zealand analysts believe, will continue.

Master trusts have experienced a strong growth of 22% over the last year.

The popularity of master trusts is due to their:

convenience and simplicity – companies join a ready-made administration, trust and funds management package; effectively outsourcing compliance with legislation and regulations;
shared costs – members from many companies share the cost of administration, funds management and trustee oversight;
imposition of reduced liability and responsibility on the part of employers.
monitoring of members’ interests by a professional trustee.

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