What is a master trust pension?

Master trusts now account for a significant proportion of workplace pensions and are still gaining momentum, but what are the implications for the rest of the market? And are there alternatives?


Since the auto-enrolment revolution of 2012, millions of workers have begun retirement saving for the first time, often with a master trust pension. Indeed, more than 16 million people have put £38.5 billion into these schemes.

A master trust pension is a trust-based scheme that a multitude of unassociated employers can join, sharing resources and reducing costs, in particular, administration, trusteeship and investment management, through bulk purchasing. They are closely supervised by the Pensions Regulator which has authorised 38 master trusts.

They range from the giant Nest, with more than nine million members which has a public service obligation to take all comers including many large retailers with transient workers, as well as the traditional pension providers such as Legal & General, Aegon and Scottish Widows. Employee benefit consultancies, including Willis Towers Watson, with LifeSight, and Aon, are also moving into this space.

Pensions Regulator imposing stricter rules

Master trusts are not yet the dominant force in workplace pensions, but there is irreversible momentum in this direction because “employers are sandwiched between the need to reduce costs at the same time as the Pensions Regulator is expecting more from trustees”, explains Roger Breeden, partner and workplace savings proposition lead at Mercer, a pension consultancy.

Analysis by Broadridge, a financial research company, estimates that by 2028 assets under management for master trusts will grow to approximately £424 billion, although some weaker and smaller master trusts may fold along the way.

In the meantime, there is a land grab among the master trust pension providers, as they try to reach scale as quickly as possible. Paul Leandro, partner at pensions consultancy Barnett Waddingham, says: “Competition is fierce, and we are seeing some very competitive deals put forward by providers. Some are even offering to foot the bill in terms of transaction costs when moving assets across. We hope these proposed charges are not bordering on the unsustainable.

Competition is fierce and we are seeing some very competitive deals put forward by providers

“We do seem to be following the trends seen in Australia, which uses a pension framework codified on the UK system and where master trusts are by far the dominant form of pension arrangement, and where consolidation has been fierce. The number of schemes reduced from about 3,000 in 2002 to 230 in 2017. Assets in the Australian superannuation system are around $3 trillion. It is not unfeasible to see the UK going in the same direction.”

The advantages of a master trust pension

According to data from the Pensions Regulator, there were 1,050 defined contribution (DC) single-employer trusts and only 370 of these had more than 100 members. Jon Parker, head of DC and financial wellbeing at Redington, says: “Over the next five years, a large proportion of these will transfer to master trusts, leaving around 150 remaining as open employer trust-based arrangements.”

Wills Towers Watson FTSE 350 DC Pension Scheme Survey 2020 shows 39 per cent of FTSE 100 companies have contract-based pensions, 39 per cent have trust-based pensions, such as a single-employer trust, and just 22 per cent have master trusts, while the Aon DC Survey 2020 shows 35 per cent of participants with their own DC trust were looking to move to master trust pensions within the next five years.

Tony Pugh, DC solutions leader, Europe, Middle East and Africa, at Aon, says: “Perhaps the main advantages triggering the majority of movement from own trust to master trust are the significant costs and resource savings available to employers that move.”

Emma Douglas, head of DC at LGIM, adds: “Many provide additional guidance and support to help members with their financial wellbeing and equip them to make better-informed decisions on contribution rates, investment options and their income needs in retirement.”

High on the list of desirable options for a master trust will be low charges, online tools, apps, newsletters, a good range of funds, including environmental, social and governance considerations, guidance and access to retirement options, with all the pension freedoms available such as in-scheme drawdown and uncrystallised funds pension lump sums or flexible withdrawals.

Workplace alternatives to master trusts

Yet assets under management in single-employer DC trusts and contract-based schemes outweigh master trusts by a significant amount. “At the end of 2018, there was £33.4 billion in assets under management in master trusts compared to £184.5 billion for single trusts and £170.6 billion in contract-based schemes,” notes Douglas.

On the flipside, Kay Ingram, director of public policy at LEBC, an independent financial adviser, feels that master trust products may have limitations, specifically regarding features, functionality and fund options.

Aon’s Pugh forecasts: “For employers wanting a highly tailored solution and who have the resources and scale to ensure costs charged to members are reasonable compared to the alternatives, their single-employer trust will continue into the long term.”

Many small and medium-sized employers favour group personal pensions (GPPs), which are also evolving at pace with providers. Indeed, Ingram says: “GPPs are probably a step ahead with their technological solutions, with sophisticated online access, online pension transfer capability and integration with personal banking solutions and apps such as Hummingbird, which are independent of any one provider.”

Master trust misinformation harming pensioners

The master trust providers continue to focus on asset gathering, rather than helping members in how to draw money away from their pension pots and the market is still catching up with the introduction of the pension freedoms introduced in 2015. One increasing worry is that members at retirement are leaving master trust pensions for higher-charging retail alternatives or because advisers are incentivised by increased fee revenues to recommend complex transfers out.

This is caused partly by a big disconnect between financial advisers and the master trust market. Breeden at Mercer says: “In some cases, retirees are taking their money out of institutionally priced master trusts into more expensive personal pensions because of a perceived lack of flexibility in the master trust or because it doesn’t fit well with the advisers’ wealth management service.”

The leading master trusts do provide some support to members as they approach retirement, but some do not give enough, cost-effective support after a member retires.  Leandro at Barnett Waddingham stresses: “People using drawdown are still members of the master trust and the trustees still retain fiduciary responsibility for these members’ assets.

“Helping people to and through retirement remains a major challenge for the industry. At the moment there is a cohort of retirees being left out in the cold, unsupported at a time when they’re making extremely important decisions about their pension savings.”


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