The majority of UK master trusts don’t survey their members on risk appetite despite The Pension Regulator’s (TPR) focus on the industry delivering better value for money pension solutions.

Last month, in her first speech since being appointed as chief executive officer of TPR, Nausicaa Delfas called on the industry to stop prioritising low costs and put value first to drive innovation in the interest of savers.

To protect defined contribution (DC) members’ pension outcomes from challenges such as a cost-of-living crisis and ‘race to the bottom on charges’, Hymans Robertson said master trusts should implement illiquid investment strategies.

In its latest Master Trust Default Fund Review, the consultancy found that historically, average returns from these types of investment would have improved net returns for members by 1-2% per year over the last decade, assuming a well-diversified approach.

The report also indicated over half of the commercial market trust market is embracing the cost to value shift in some way, with many making a move towards investing in illiquids.

Understanding members’ risk appetite?

According to Claire Roarty, head of DC provider relations at Hymans Robertson, in the UK master trusts don’t survey members “as a matter of course on risk appetite”.

She said that many master trusts will offer a range of investment defaults with low, medium or high risk profiles, with the medium being the standard offering.

She continued: “Employers can usually select their preference for the membership as a whole, otherwise it would be up to individuals to select a different option if they wanted something more or less risky.”

She added that over the past few years many providers moved away from risk-rated defaults and portfolios as there has “not been sufficient take up from pension scheme members”.

She said: “In setting the investment strategy for their default options, and therefore risk level, providers will assess the demographic make-up of their membership as well as member behaviours, with a focus on expected outcomes rather than risk.

“Risk considerations are not driven by member views but by expert opinion with respect to market conditions and overall optimisation of outcomes.”

Given the “lack of engagement from UK pension savers” she said this feels like an “appropriate approach”.

The People’s Pension, Smart Pension and LifeSight do not conduct members surveys on risk appetite.

While People’s Pension and Smart Pension did not offer a reasoning for not surveying members, LifeSight said this is a deliberate move as it believes most members are better served by investing in the default funds, rather than selecting funds themselves.

Within LifeSight’s default fund options there is risk profile tailoring that members can choose from, including low, medium and higher risk, as well as anticipated pension income tailoring including drawdown, annuity and lump sum, which affects risk profile and whether the extent to which a pension pot needs to be de-risked as the individual nears retirement.

NEST, meanwhile, said its investment strategy is informed by pension savers’ behaviour when it comes to making fund choices.

A spokesperson for NEST said its default investment strategy considered how savers’ risk profiles typically change, both over the course of their life and as they approach retirement.

Smart, however, has taken another approach by aligning its funds with members’ values.

Steve Watson, director of policy and research at workplace pension Cushon, said that according to Cushon’s research, 68% of employees are concerned that their company pension could be investing in businesses that are contributing to the climate crisis, while 88% want their employer to take action to address this, for instance by moving to a pension provider that is making a positive impact on climate change.

He said: “Our investment strategy sees us investing in the likes of solar farms, windfarms and sustainable agriculture. These are real-world projects delivering impact that we can directly engage members in. They can see their money in action.

“And engagement is key. It’s no secret that people do not engage with their pension enough in the UK. We need to turn that around.”

Risk and reward

Tom Curtis, principal and senior retirement consultant at Mercer, said that while the consultancy has surveyed its members with respect to investment previously, it typically focuses on questions that provide it with insight into members understanding of the trade-offs between risk and reward rather than explicitly asking them what their attitude to risk is.

He said: “Typical examples are their understanding of the differences in risk and reward of different types of investments and whether they are interested in using tools to help them understand what their attitude to risk actually is.”

Curtis said that through its surveys it identified that members believe they understood the trade-off between risk and reward (85% said they did) and 70% believed they understood the potential risk and reward of different types of investments.

These questions, Curtis added, influenced the way Mercer communicates to its members and the options it makes available to members.

“Our default investment strategy is designed to be suitable for the average member who does not wish to make any of their own investment decisions,” he said.

“For members who may want more flexibility in their approach to investing we provide both a range of risk graded funds that invest across a diversified range of asset classes; and a self-select fund range that includes both active and passive funds across a wide range of asset classes,” he continued, adding that these funds give members the tools they need to create their own portfolios suitable to their own risk tolerance.


According to Paul Armitage, head of the national pensions trust at XPS Pension Group, individual schemes and members can find it “challenging” to navigate short and long-term risk trade-offs when making long-term investment decisions, which is why the policy of auto-enrolment in UK master trusts was introduced.

He said: “In establishing a default fund, the trustees of a master trust will consider several factors as part of their risk appetite assessment. These include the member demographic of the scheme and when and how members are expected to take their benefits, which may, of course, change over time.

”Trustees design an approach that best meets the needs of the whole membership, in line with their fiduciary duty. A default fund is not individually optimised but will be broadly suitable for all and minimises the risk of savers making poor investment decisions, which requires specialist expertise and detailed analysis of risk and return.

”Asking members about this directly via a survey would, in our view, be counterproductive to the efficient management of the trust.”

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