Two-thirds of employers who currently run their own trust-based pension plans are considering switching to a master trust within the next two years, according to new research from Willis Towers Watson.
Its annual FTSE 350 DC pension study shows that on top of this 12 per cent of employers who already use a master trust are also considering reviewing their provider within this time scale.
Willis says this indicates that the master trust market is entering a new phase of maturing, with a secondary master trust market emerging.
Gemma Burrows, director in Willis Towers Watson’s Retirement business, says: “For many employers that moved to a master trust five plus years ago, the options available in the industry have changed dramatically. Some of those employers are now starting to look around and consider whether there are more suitable, alternative providers that could offer better value or service to members.
“For those schemes it will be important to think very carefully about which provider can fulfil their needs over the long-term. There is some consolidation happening in the market at the moment, so things are still changing and they won’t want to be revisiting the marketplace again in a few years’ time. This also suggests that plan sponsors are still keen to have oversight of these plans, even after outsourcing the governance, to make sure they continue to deliver a valued and a high-quality provision for their employees.”
The study also highlights the rapid adoption of responsible environmental, social and governance (ESG) strategies within many DC default funds. The rate of ESG adoption has almost doubled over the past year, with 30 per cent of schemes reporting that their default investment option is now ESG focused. Willis also found that half (49 per cent) of schemes say they plan to integrate ESG into their default investment funds in the future.
Burrows adds: “ESG continues to gain significant focus across all scheme types. This demonstrates a commitment from plan sponsors to make it easier for members to invest in a way that takes these important factors into consideration.
“Schemes are increasingly aware that ESG can form an important aspect of engaging with members.”
The study also found that despite the financial strains of the pandemic, pension contributions levels, via maximum matches have remained stable among FTSE100 companies.
For employer-matching DC schemes, average contribution rates remain over 17 per cent, and for non-matching schemes contributions rates average just under 11 per cent, both consistent with 2019 and 2020 levels.
Furthermore, a significant minority (16 per cent) reported an intention to increase pension generosity in the short term and none expect contributions to be reduced.
Burrows says: “There was concern this year we might see a reduction in benefits and commitment as organisations grappled with maintaining financial stability, and workforce planning. Far from this, what we see in this year’s results is a compelling desire for organisations to improve member outcomes and enhance the support that is provided to them.
“Clearly it’s good news for employees that DC contribution rates held up during the recent challenging financial circumstances for many employers. However, we can see that from a retirement savings perspective less than 20 per cent of companies enrol at a default contribution rate in excess of the minimum level on offer. Therefore, there may still be work to do to overcome inertia in decision making so individuals understand and take advantage of the more valuable contribution rates that could be available to improve their own outcomes.”
