Many smaller single trust pensions could face problems switching to a master trust structure in the second half of this year, due to the volume of transfers being carried out.
Investment consultants gave this stark warning at the Corporate Adviser Pensions Summit, predicting that the DC transfer market would continue to accelerate into 2021.
A poll of consultants and provided attending the event showed most (55 per cent) expected this activity to peak in the second half of 2021. More than one in three (35 per cent) added that they expected transfer activity to continue growing into into 2022.
Hymans Robertson partner Lee Hollingworth, talking at the event, said that within five years he expected most smaller single trusts to have transferred into a master trust structure.
“The intentions of the Department of Work and Pensions are clear. They want to turn the screw on these smaller trusts. I would expect there to be just 10 larger single trust pensions left in the sector within five years”
Hollingworth said that despite the Covid-crisis their business had not seen a drop off in transfer activity since March.
Given this activity, Muse Advisory chief executive Ian McQuade says that there will be a “capacity challenge” in the second half of this year dealing with transfers.
He says some transfers that were planned at the start of this year had been delayed due to market volatility caused by Covid.
“For those looking to transfer there are deals there, but they will take time. The preferred terms may only be available to the biggest scheme.”
Hollingworth says that the timing of any transfer has to be thought through carefully, particularly as markets may continue to be volatile in response to Covid and events like the US presidential election.
There should be the option to delay transfer at the last minute he says, if market risk is an issue. While some receiving providers will cover the cost of this, this is not always the case and costs can fall back on employees.
Consultants and advisers have a key role to play when it comes to selection a receiving master trust. McQuade says that he expects there to be further consolidation in the master trust sector.
He says it is important for advisers to understand a master trusts business model, to select trusts that are well capitalised and have a business plan going forward.
As well as ensuring the proposition meets the needs of trustees and sponsors, advisers need to be confident they are recommending a trust that will still be there in 10 years time.
However a further poll showed that many consultants at the event were aware of some limitations of master trust governance, with 75 per cent of those attending saying these did not expect trusts to ever sack asset manager or administrator if they were part of the same group.
