16 million reasons why master trusts must continue to innovate and evolve
From climate change, to pension scams, it was a whirlwind tour of what is on the horizon for the next year and beyond in the world of pensions.
It was also an opportunity for Opperman to reflect on the progress of auto-enrolment and how employers are supporting members with their retirement needs.
His speech echoed some of the key trends that REBA has seen in its new Pensions and Master Trusts Research 2020, released this week in association with Scottish Widows.
According to The Pensions Regulator, master trusts are now managing over £36 billion in retirement savings on behalf of 16 million individuals. And Corporate Adviser’s Master Trusts and GPP defaults 2020 report showed that the market is expected to grow to more than £190 billion assets under management by the end of 2025.
That is a vast number of individuals, a huge amount of money – and crucially – the retirement prospects of a major tranche of the UK workforce. It is vital that, as the market continues to evolve, master trusts continue to innovate and offer robust, well governed, accessible schemes for members.
REBA’s research found similar trends, with 79% of respondents saying that they use either a group personal pension (GPP) or a master trust to provide a pension for their employees, and just 11% now offering in-house trust-based defined contribution.
This is a trend that Opperman said he very much favours: “Consolidation is a sign of maturity in the defined contribution (DC) market. Big is generally better.” He called for faster consolidation within DC pensions, which also has important considerations for members. “It’s not acceptable for members to remain in schemes that can’t achieve economies of scale.”
Size alone isn’t the only reason why the fast-maturing master trust market is emerging as a strong choice for members’ future needs. Commitment to responsible investment in the default fund is already becoming a differentiator for many master trusts and is increasingly important to scheme members.
Innovation in retirement products, particularly drawdown, is another major area of focus as more employees saving into DC schemes reach retirement.
Master trusts’ economies of scale mean they should also be in a strong position to use technology to change the way we view retirement savings. That could include helping members get a better picture of the relationship between pensions and the rest of their savings, through to understanding whether they are saving enough for retirement.
As a longer-term trend, pensions are starting to blend into the bigger picture of employee’s financial wellbeing, and technology will also help to drive this. REBA’s research found that 96% of respondents see value in offering other financial products alongside a pension – overwhelming evidence that closer links between retirement savings and other forms of finance will be essential in the future.
The author is Maggie Williams, content director at REBA.
