The rise of master trusts – but not all are made equal

Master trusts have experienced rapid growth in recent years and offer many advantages, but employers and trustees need to think carefully before choosing one

Master trusts have enjoyed rapid growth in recent years as an increasing number of employers use them as a way to reduce risk and costs, improve oversight and upgrade the investment options available to their employees. While the workplace defined contribution pension market is expected to grow by about 8.3% annually until 2029, master trusts are expected to grow by 20.8% per annum, according to Smart Pension, which has grown rapidly to become one of the ‘big four’ auto-enrolment master trust providers on the basis of its innovation and sustainability focus.

The value for money (VFM) requirement for occupational pension schemes with assets of £100m or less, which requires them to compare costs, charges and investment returns against three other schemes, is another driver because master trusts can provide economies of scale. Scale also means that master trusts are better placed to make the most of opportunities to invest into infrastructure projects.

“It’s also about harnessing the latest technology to improve the user experience,” explains Paul Bucksey, managing director of Smart Pension. “This is important because, for example, with an ageing population there is a need to focus on helping individuals convert their pension savings to income. Increasingly, we know that people plan to carry on working, albeit part time, and so they’ll want to manage their pension income alongside any income from their work.”

It was their blend of financial and technological expertise that enabled Andrew Evans and Will Wynne to launch Smart Pension in 2015. Today, the company’s global aspect means that it can scan the sector internationally for best practice. “Whether you’re an employer, an adviser or a member, you can interact with Smart Pension instantly. Someone was complaining recently to me about how it took five days with their old provider to change their address but with us you just go onto the platform and do it yourself,” explains Bucksey.

The master trust sector is forecast to become the fastest-growing market segment over the next decade

Master trusts’ strong governance and their use of trustees to reduce the administrative burden on employers, as well as their ability to upgrade their investment strategy without needing the consent of members when necessary, all form part of their appeal. With around 35 master trusts currently available and competition intensifying, employers looking to switch to a master trust might wonder how to choose the right one. We’re seeing companies transfer from their own trust-based pension over to Smart Pension for cost and fiduciary reasons, as well as to simplify their pensions administration and upgrade the support and guidance available to their employees.

Bucksey says: “We know choosing sustainable investments that help to reduce the impact of climate change, improve diversity and inclusion, and have a positive impact on the world is at the front of people’s minds.”

As a result, Smart Pension is ensuring that members can take advantage of new opportunities. More than 70% of its default growth fund is already invested in line with environmental, social and governance (ESG) principles, with plans to increase this to 100% over the coming months.

“As well as growth in the sector, we’ll continue to see some consolidation of master trusts over the next few years,” says Bucksey. “And it’s clear that the winners will be the most technologically enhanced, allowing them to provide employers and employees with value for money and an easily accessible interface, as well as the opportunity to invest responsibly while providing strong governance, thereby reducing the burden on employers.”

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