A more mature market brings new challenges for master trusts

Master trusts have been a major success story since the introduction of auto-enrolment. As the market matures, providers and master trust users have some new questions to address.

A more mature market brings new challenges for master trusts


Master trusts levy charges on the pots and/or contributions of the members in order to meet the costs of running the scheme, and create a profit. For employers looking for a scheme to enrol their employees into, charges are a visible differentiator, and an important deciding factor in which pension scheme to use.

Schemes used for auto-enrolment are subject to a charges cap, so that members are not exposed to excessive fees. Low charges are an important factor in getting a better outcome in retirement, but there are also other issues such as ‘does the charge provide value for money?’

‘Value for money’ is a difficult term to quantify and means different things to different people. Charges can also take different forms, including flat fees, a proportion of the pot, or a charge on contributions.

Different charging structures can affect members differently depending on their circumstances. For example, former employees’ small inactive pots may be whittled down by flat fee charges. Or, a charging structure based on charging contributions may hit active members who are still making contributions more than inactive members.

Inactive pots

Inactive pots are those that no longer receive contributions, because employees change jobs, or simply decide not to be a member of the pension scheme any more. As employees are automatically enrolled into a pension scheme each time they start a job, a person who has 11 jobs throughout their working life might have 10 inactive pots and one active pot associated with them by the time they retire.

Currently there are as many inactive pots in master trusts as there are active pots. The number of inactive pots is projected to increase faster than active pots, leading to deferred pots far outnumbering active pots in the future. On average they are too small for a traditional proportion of fund charge to cover the costs associated with administering them, without the charge breaching the cap. This means that the costs must be subsidised, or the master trust will make a loss.

Proposed solutions tend to focus on consolidating a member’s pots. This increases the size of the resulting pots and reduces administration. Some master trusts already consolidate pots belonging to a single member (for example if the member returns to a previous employer, or two different employers both use the same master trust). But there are also ideas about consolidating pots across providers on a swapping basis, or by there being an automatic transfer when an individual moves employment and pension provider.


Master trust pension schemes are, like all businesses facing unknowable future consequences of the global pandemic. Possible consequences include the impact on stock market asset prices affecting pension savings over the longer term, unemployment stemming from redundancies or business closures, and perhaps changes in working practices having knock-on impacts on employment levels and sectors.

The author is John Adams, senior policy analyst at the Pensions Policy Institute.

This article is provided by Pensions Policy Institute.

John Adam's article features in the REBA Pensions and Master Trusts report, in association with Scottish Widows. The report explores employers’ views on their pension schemes; the challenges they face with encouraging staff to save for retirement; and what actions they plan to take to address those challenges in the future. It also explores employers’ views on master trust pensions and their position within the pensions market. Download the full report for free here.

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