A shift in focus for pension saving

Shifts in the world of workplace pensions tend to happen slowly, so they can be easy to miss. Step back for a moment and we can see the future direction of travel for both pension plans and the importance of long-term financial wellbeing for workforce planning and organisations’ business strategies.

The rapid growth of the pension master trust market is something we particularly want to flag up to all those who have any responsibility for workplace pensions. Even if your organisation has no intention of using a master trust, the predicted level of investment going into this sector means it will have hugely significant influence for many decades. What appeared to be a niche area pre-2012, and before pensions auto-enrolment, has now become an important sector and will significantly impact pensions savings outcomes and financial wellbeing for employees.

The research in the Pensions and Master Trusts report shows that already as many as one in five of our respondents (18%) use a master trust arrangement to auto-enrol employees. This makes master trusts the most common form of trust-based pension plan in the workplace. Although right now, they still have some way to go to catch up with contract-based group personal pensions, which are offered by 61% of our respondents.

This big shift towards master trusts, is down to employers wanting to guarantee quality governance, security and investment expertise without the costs of delivering these themselves. In addition, the number of employers offering a single trust scheme for their own staff has shrunk dramatically over the past decade. Fewer, well-run large master trust schemes should be a lot better for employees’ saving outcomes than many smaller, employer-sponsored single trusts, which cannot always afford the same level of skill to run them as the big players.

While the use of master trusts by employers has grown fast, the number of providers has shrunk due to The Pensions Regulator putting in place Master Trust Authorisation in order to ensure only quality providers are able to operate. Clearly, a big attraction for employers that are used to offering trust-based schemes is the ability to have robust trusteeship in place, while sharing costs across a broader base of employers. This is good for employees too because lower costs mean more money staying invested to grow for their futures.

Our report demonstrates just how much care so many employers do put into the long-term financial wellbeing of their employees, even though very few employees truly engage in their pensions until closer to their retirement. While some organisations do this because it is the right thing to do, for many, achieving good retirement savings outcomes for employees is not primarily about being good to staff. It is about ensuring good future business outcomes: with employees who want to retire being able to at their chosen age.

To our mind, a good financial wellbeing strategy, especially long-term savings, is about an organisation’s talent management and workforce planning. Pensions are the mechanism to get there, while covering the hygiene factor that all employees need a pension.

The authors are Debi O’Donovan and Phil Hayne, directors of REBA.

This article features in the Pensions and Master Trusts Research 2020. View the full report findings.