The UK’s defined contribution (DC) master trust market is entering a new phase of maturity as some of the employers that adopted early are considering reviewing providers.

According to Willis Towers Watson’s annual FTSE 350 DC Pension study 2021, nearly two-thirds (61%) of employers that continue to run their own trust-based arrangement have indicated that moving to a master trust is under consideration in the next two years.

But 12% of employers that already use a master trust are considering reviewing their provider in the next two years.

Gemma Burrows, director of WTW’s retirement business, said: “For many employers that moved to a master trust five plus years ago, the options available in the industry have changed dramatically. Some of those employers are now starting to look around and consider whether there are more suitable, alternative providers that could offer better value or service to members.”

She noted that for those pension plans reviewing their providers, they will need to “think very carefully about which provider can fulfil their needs over the long term”.

She added: “There is some consolidation happening in the market at the moment, so things are still changing and they won’t want to be revisiting the marketplace again in a few years’ time.”

She believes that plans sponsors are still keen to have oversight of these plans, even after outsourcing the governance, to make sure they continue to deliver a valued and a high-quality provision for their employees.

ESG integration

The study also found that the rate of ESG adoption in default funds has almost doubled in the past year – 30% of schemes said their default investment option is now ESG focused (up from 17% in 2020).

Furthermore, 49% of schemes said they plan to integrate ESG into their default investment funds in the future, the study revealed.

“ESG continues to gain significant focus across all scheme types and within two years it is expected that almost half of schemes will have taken the step of integrating ESG into the default option,” Burrows said.

Stable contribution rates

WTW’s study also revealed that despite the financial strains many companies and employees have been put under throughout the pandemic, contribution levels for FTSE100 companies have remained stable.

For employer matching DC schemes, average contribution rates remained over 17%, and for non-matching schemes contributions rates average just under 11%, both consistent with 2019 and 2020 levels, it found.

A significant minority (16%) reported an intention to increase pension generosity in the short term and none expect contributions to be reduced, it added.

“There was concern this year we might see a reduction in benefits and commitment as organisations grappled with maintaining financial stability, and workforce planning,” Burrows said, adding that this year’s results is a “compelling desire for organisations to improve member outcomes and enhance the support that is provided to them”.

She noted, however, that there may still be work to do to overcome inertia in decision making so individuals understand and take advantage of the more valuable contribution rates that could be available to improve their own outcomes.

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