Four out of ten DC schemes are looking to consolidate in the next few years, according to XPS Pensions Group.
According to a report by XPS report called ‘2022: the year to decide. To Govern or to Consolidate?’, 43 per cent of DC schemes are planning to consolidate in the next several years. A commercial mastertrust is preferred by 76 per cent of respondents.
The report also found that more than half of 57 per cent of the DC schemes questioned intend to continue to rule for the next five years or longer. Nearly a quarter of this group said they are continuing to govern because their current scheme provides adequate value for money, and a fifth said they are doing so because they are concerned that transferring the DC scheme elsewhere would reduce autonomy and the amount of input the employer has on their employees’ financial well-being.
XPS warns that with the government’s increased push to consolidate, sustaining the status quo and continuing to rule would only get more difficult. DC plans will have to compare themselves to other plans on the market and show that they are providing good results and value to their members.
XPS expects a considerable number of smaller schemes, those with assets of less than £100m, to merge in the next 12 months, with 76 per cent choosing a commercial Master Trust. One-third of schemes with assets of £100m or more want to merge, with the majority doing so within the next two to five years. The government’s new DC governance standards are substantial to 76 per cent of schemes surveyed.
Following new restrictions from the Department for Work and Pensions (DWP) that went into effect in October 2021, 2022 will be a critical year for DC plans. Smaller DC schemes must either fulfil new minimum governance requirements or consolidate into larger schemes, according to the government, because larger DC schemes produce better member outcomes.
Sophia Singleton, Head of DC at XPS Pensions Group, said: “This years’ value for money assessment will be the most important assessment DC schemes will undertake. They need to be prepared for the results and actions that must be taken to ensure compliance, but most importantly, to ensure value for money and good member outcomes. Trustees will need to act decisively to ensure DC savers can make the most of their retirement savings.”
