DC master trust members can hope for better outcomes
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Since 2022, expected outcomes have improved for defined contribution master trust members, particularly for older members affected by the gilt market volatility, according to a new report published on Thursday.
Hymans Robertson’s latest Master Trust Insights Report looks at three sample members, who are 30, 10 and five years from retirement, and how their outcomes have changed over the past five years.
The consultancy says that projected outcomes have significantly improved across all life stages since the 2022 gilt market volatility, as market conditions have been more benign compared with 2022, with lower levels of inflation, falling yields and higher than expected global growth forecasts.
Head of DC provider relations Shabna Islam said the analysis tells a positive story for savers at all stages of the master trust glide path, citing the economic backdrop.
“Equity markets have also provided particularly strong returns, as the technology sector continues to be the driving force in global markets. Younger members see an exaggerated benefit from this growth – mainly driven by stocks associated with AI – given the higher equity allocation of their funds,” she observed.
Hymans Robertson’s latest Master Trust Insights Report looks at three sample members, who are 30, 10 and five years from retirement, and how their outcomes have changed over the past five years.
The consultancy says that projected outcomes have significantly improved across all life stages since the 2022 gilt market volatility, as market conditions have been more benign compared with 2022, with lower levels of inflation, falling yields and higher than expected global growth forecasts.
Head of DC provider relations Shabna Islam said the analysis tells a positive story for savers at all stages of the master trust glide path, citing the economic backdrop.
“Equity markets have also provided particularly strong returns, as the technology sector continues to be the driving force in global markets. Younger members see an exaggerated benefit from this growth – mainly driven by stocks associated with AI – given the higher equity allocation of their funds,” she observed.
Private markets and decumulation come into focus
The report suggests there are considerable differences between master trusts in terms of volatility and returns, with some providing low returns despite high volatility, and a cluster of four offering higher returns at medium volatility during the growth phase. The distribution in the pre-retirement phase is perhaps even more surprising, with returns varying greatly.
Hymans Robertson anticipates further developments in provider defaults strategies with the introduction of private market assets. Some providers are expected to launch additional ‘premium’ defaults at a higher cost point that include an allocation of 10% to 15% to private markets. DC schemes currently hold about 4% of assets in private markets, according to government estimates.
The consultancy says master trusts are also placing greater emphasis on decumulation strategies, as some seek to offer a true 'to and through' investment solution. The pension schemes bill expected next year is set to introduce a requirement for DC trustees to offer decumulation pathways or a default.
In addition, the government and regulators have drawn up a value for money framework, proposing that pension fund governing bodies will have to give their schemes a red, amber or green rating, and compare it with other schemes, potentially driving change in the sector.
Master trusts can expect huge impact from DC proposals
Pensions are in focus for value but also for kickstarting economic growth. The Treasury and Department for Work and Pensions are consulting on setting a minimum size for the default ‘funds’ of DC multi-employer schemes to be in force by 2030, believing efficiencies become available from £25bn. It also proposes to limit the number of default funds a provider can operate, ban differential pricing, and to place a duty on employers to consider value in DC, with a named executive given responsibility for retirement outcomes of staff.
The government estimates there is about £600bn in DC assets in the UK, and that the UK’s largest workplace DC providers have about £100bn in bundled assets but wants this to be larger. Chancellor Rachel Reeves previously told UK schemes to become more like Canada’s public sector pension giants. One of these ‘Maple 8’ schemes has just announced it is hiring Dame Sharon White, a former second permanent secretary to HM Treasury.
The DWP's own analysis notes "a clear link between scale among pension providers and the ability to diversify investments" - into private market assets for example - from £25bn, and the ability to negotiate down fees from £50bn. However, it also says that “there is no consensus on the optimal size of a DC pension fund”.
The largest Australian superfund has about £100bn in assets, similar to the UK's largest providers, while Nest is expected to reach that size in 2030. No UK master trust has yet passed the £50bn mark.
The government estimates there is about £600bn in DC assets in the UK, and that the UK’s largest workplace DC providers have about £100bn in bundled assets but wants this to be larger. Chancellor Rachel Reeves previously told UK schemes to become more like Canada’s public sector pension giants. One of these ‘Maple 8’ schemes has just announced it is hiring Dame Sharon White, a former second permanent secretary to HM Treasury.
The DWP's own analysis notes "a clear link between scale among pension providers and the ability to diversify investments" - into private market assets for example - from £25bn, and the ability to negotiate down fees from £50bn. However, it also says that “there is no consensus on the optimal size of a DC pension fund”.
The largest Australian superfund has about £100bn in assets, similar to the UK's largest providers, while Nest is expected to reach that size in 2030. No UK master trust has yet passed the £50bn mark.
How will the proposals in the DC consultation affect the master trust market?
