UK pensions officials are expecting an accelerated consolidation of the master trust market from the current 36 authorised master trusts – which account for 20.7 million defined contribution (DC) memberships – to somewhere around 10.

Industry officials believe that market consolidation within UK master trusts is crucial for several reasons. Firstly, it reduces the number of smaller, less robust trusts, leading to a more stable and resilient pension landscape. Secondly, larger master trusts can benefit from economies of scale, lowering costs and enhancing returns for members. Thirdly, consolidation ensures stronger regulatory oversight, safeguarding members’ interests.

Moreover, it encourages innovation and efficiency within the sector. Ultimately, a consolidated market can better weather economic challenges, offer improved retirement outcomes, and inspire greater public trust in pensions, fostering a secure and prosperous future for retirees in the UK.

This is evidenced by last month’s acquisitions of National Pension Trust by SEI, and of Evolve Pensions by Smart Pension.

Furthermore, following the law brought in 2017 requiring master trusts in the UK to meet new standards, the number of master trusts shrunk from 90 to 38 by 2019, as the deadline for authorisation of DC master trusts offering auto-enrolment services approached.

Mansion House Compact

As part of Mansion House reforms, Jeremy Hunt, chancellor of the exchequer, launched a Mansion House Compact as part of which participating schemes committed to boosting investment in UK allocating at least 5% of their default funds to unlisted equities.

WTW’s James Colegrave, a DC senior consultant, said that in the world of investment, and especially in the world of allocating assets to illiquid investments, a large fund can do “better and clever things”.

He said: “The chancellor knows it. It also makes it easier for regulators to encourage certain behaviours if you’ve got fewer funds with more assets in them.”

Colegrave added that “this is the bigger picture” and it has already been demonstrated in Australia and Canada, jurisdictions that the chancellor drew a comparison to in his Mansion House speech last week.

Colegrave continued: “The chancellor is thinking he would like to do that too, and the way forward is to encourage consolidation. Master trusts are seen as the logical consolidated vehicle.”

Small pots consultation

As part of its drive to increase pension schemes’ investment into illiquid assets, the UK government has also looked to fix the small pots problem by proposing a consolidation of small pots of pensions.

To do so, the government proposed to launch a new entity called the consolidator, and master trusts will have to apply to become a consolidator.

This could contribute to a reduction in the number of master trusts, according to Tim Gosling, head of pensions policy at People’s Partnership.

Gosling expects that in the next three to five years there could be only a large handful of pension schemes operating in the UK marketplace. This could look similar to the retail banking market where there is a handful of big players and “thick barriers to entry”.

This will also be supported by the upcoming Value for Money consultation which will assess who is and who isn’t providing value, with those who don’t provide value expected to consolidate. However, the exact criteria is not expected to be published until autumn.

A lot of master trusts already recognise that at the point of authorisation the number of master trusts will be reduced drastically.

SEI’s DC and solutions managing director Steve Charlton said that “nobody is going to volunteer to shut”.

He added the only option will be to “sell, merge or be consumed by bigger entities”.

He said: “I don’t have a crystal ball to tell you where it would end up but I feel there is more consolidation to come. There is still a few of the smaller master trusts, some of them incredibly well run but they are still smaller and that will probably go through the consolidation process.”


Charlton pointed out that SEI has already bought two master trusts that are over £1.5bn each, one of them being National Pension Trust which it acquired from XPS Pensions earlier this month.

SEI’s has not been the only acquisition this month – a week later Smart Pension announced it acquired Evolve Pensions, making it its ninth master trust acquisition so far.

Jamie Fiveash, chief executive officer of Smart Pension, told IPE that he wants Smart Pension to be a consolidator.

Citing the reason behind consolidating, Fiveash said that in order to offer a diversified range of investment, something that Smart Pension committed to by signing up to Mansion House compact, scale is important.

He added that Smart Pension has an ongoing conversation with other schemes to find those that are the right fit and similarly to other commentators, Fiveash believes the number of master trusts in the market will decrease significantly in the next five to 10 years.


What is interesting about the current activity in the market, according to Andy Parker, partner at Barnett Waddingham, is that some of the biggest master trust such as L&G, Aviva and People’s Partnership have not yet acquired other master trusts.

He said: “Potentially that’s because they already have the scale, either through their [own] master trusts or because they have much bigger assets, to do what they want and react to what government is saying you must do in the future.”

Parker added that scale will be important as the government is looking to mandate how schemes are investing their money and the Pensions Regulator is asking schemes to focus on value, not on costs.

He added that some smaller master trusts will either have to accept that they are not going to be able to compete and will eventually submit to consolidation.

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