The UK’s Department for Work and Pensions (DWP) expects the master trust market to triple over the next seven years, and will require further action from The Pensions Regulator (TPR).

The DWP said that master trusts are set to play a leading role in the reforms announced at Mansion House in the summer and at the chancellor’s Autumn Statement yesterday.

The department’s analysis shows that the trust market could grow from around £140bn in 2023 to £420bn in 2030. It said this scale will open up opportunities for large schemes to become more dynamic and sophisticated in their investment strategies.

This could lead to over half of trust-based defined contribution (DC) assets being in schemes over £50bn, nearly two thirds in schemes holding more than £30bn, and over three quarters in schemes of over £20bn.

With the potential growth in members of these schemes, this could mean that over three quarters of trust-based DC members could be in schemes of over £50bn, approaching 80% of members in schemes holding more than £30bn, and over 80% in schemes of over £20bn.

DWP’s analysis of the market found that the current regime is overall fit for purpose at this stage, adding that in the majority of cases, it allows TPR adequate oversight and engagement with master trusts.

However, it said there are areas which warrant further action by the regulator in the medium term, and possible further regulatory intervention or regulation by DWP.

Therefore, the DWP stated that TPR will adopt a “collaborative” supervisory approach, which will focus on value and continuous improvement of the master trust market.

The regulator will also build on the current provision of investment data, seeking an increased flow of more timely asset management and investment information. This, it said, will enable TPR to closely review the changes to strategies and to understand trends in investment, building a market-wide picture and allow TPR to intervene to warn members at timely moments.

DWP explained that this information will be used to drive better performance by challenging schemes at key moments and will include challenging how decisions are made and the expertise on trustee boards, and prompting schemes to consider their strategy if they are underperforming relative to others in the market, focussing on continuous improvement

TPR will evaluate this strategy and explore further with DWP whether any legislative changes may be necessary in future to support this enhanced level of scrutiny.

Lastly, TPR will work to define and identify schemes reaching systemically important size and consider what additional oversight these schemes may require.

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