7 March 2019
“Resistance is futile. Lower your shields and surrender your ships. We will add your biological and technological distinctiveness to our own. Your culture will adapt to serve us.”
So said the Borg in Star Trek. And when you look at what’s been happening in the DC arena over the last few years, it’s certainly tempting to conclude that all DC schemes will eventually be assimilated into ‘the Collective’, which in this context means Master Trusts.
The growth in the market
The latest statistics from the Pensions Regulator (TPR) show that membership has increased from 270,000 in 2012 to c10m in 2018, with asset values having grown to approximately £29bn. Seven out of ten people coming into DC now join Master Trusts.
Much of this can be explained by the impact of auto enrolment and lower than expected opt-out rates but there are other factors in play:
- Pressure from the Department of Work and Pensions/TPR on smaller scale own trust-based schemes to improve governance;
- Many trust-based schemes are using Master Trusts to house deferred members; and
- They are also starting to be used as parallel vehicles to permit members to access flexi-access drawdown, which many schemes find challenging to offer in-house.
If your scheme’s fund management charges are higher than average because it doesn’t have the buying power of a ‘wholesale’ Master Trust, you can see the attraction.
Master Trusts also offer the opportunity to outsource trusteeship and associated responsibilities, i.e. no more Chair’s statements/Value for Member analysis. So, it’s no surprise that many well-known employers have already decided to make the move.
What’s not to like?
Although Master Trusts have been around for a while, TPR has recently forced them to be re-authorised by introducing much more stringent operating requirements.
As a result, many are now in the process of being taken over (assimilated?) because they have recognised they won’t have the scale or distribution to survive. More than 30 trusts have decided to leave the market altogether, which stacks up with the research and advice we’ve shared with clients who have reviewed the Master Trust market in recent years.
What about those that are left?
There are now many different varieties competing for your attention, with varying capabilities and functionality. These range from the traditional to the ‘newer kids on the block’, such as those sponsored by consultants and/or white-labelled, which means that independent advice is more important than ever to assess which type may be suitable and how you might transition.
So just make sure that if you beam down to ‘Planet Master Trust’ that Scotty has sent your clothes as well.