Master trust usage set to double as three quarters of DC schemes review delivery

Kim Kaveh reports...

The number of businesses expecting to have a master trust as their main defined contribution (DC) pension scheme is expected to double over the next three years to 26%, a LifeSight survey reveals.

According to research by the master trust – operated by Willis Towers Watson – nearly three quarters (71%) of organisations have reviewed, or are planning to review, their DC pension delivery vehicle in the next two years.

Its poll of 190 organisations between June and July this year asked respondents what their organisations current main DC pension scheme is, as well as what they expected the organisations main DC pension schemes to be in the next three years.

It found that single employer trusts and group personal pension contract-based pension schemes are set to see their market share decrease from 34% to 23%, and 50% to 47% respectively over the next three years.

Some 68% of respondents cited their reasoning for reviewing pension delivery vehicles as the “desire to enhance communication and engagement”, while 60% said to improve outcomes. Meanwhile, just under a third (31%) of respondents said that integrating pensions into a wider financial well-being programme was a driver for them to review delivery.

However, the costs involved with the switch to master trusts was cited as the main barrier to changing an organisation’s DC pensions vehicle for under half (43%) of respondents. Further barriers included the internal resource and time required – 43%; lack of clarity around benefits or insufficient benefits from a change, compared to the current provision – 41%.

LifeSight head of proposition development David Bird said: “With the master trust market having experienced rapid growth since its inception, it is no surprise that the survey shows more organisations are moving towards master trusts.”

However Bird said he anticipated more consolidation in the market as a result of the authorisation regime.

He said: “This is good news for prospective employers and members, as those master trusts left standing will be able to achieve the scale necessary to improve their offering to members.”

Bird concluded that the desire for better member communication and outcomes is something that the research “encouragingly” reveals is a key motivating factor behind organisations’ decisions to review their DC pension delivery vehicle.

“For those organisations looking to switch to a master trust, focus should be on the strength and quality of governance and management of those trusts under consideration.”

The master trust authorisation regime kicked off on 1 October. There are now around 58 master trusts remaining in the market which will either need to apply for authorisation or exit in the coming months. So far, at least 30 schemes have confirmed they will not seek permission to continue operating post-April 2019. The People’s Pension has absorbed Your Workplace Pension, and Salvus consolidated Complete Master Trust.