As the Pension Schemes Act finally received royal assent in May, some master trust providers looked on with anxiety as the provisions of the scale test were etched into law.
The test is a requirement for multi-employer defined contribution schemes to have a minimum of £25bn within a default fund by 2030, or face the catastrophe of losing auto-enrolment income. Those with at least £10bn by that time can apply for an extension to 2035, provided they can show a ‘credible’ transition plan to the government.
All this must presumably weigh on the mind of Steve Charlton, DC and solutions managing director at SEI. As of 22 June, the SEI master trust had just £5.25bn in assets under management, of which 93 per cent was in the single default. Yet Charlton is in bullish mood, despite the scale test and its rapidly approaching deadline. “We’ll carry on as we are,” he says.
“We continue to win clients [from] all sorts of industries, and the submissions that we make to The Pensions Regulator (TPR) have always had us on that magnitude of scale every year that we’ve had to submit one since authorisation. So [the scale test] is not something that we fear.”
Charlton can rely on much previous experience as one reason for staying calm. He has had close to 40 years in the industry, having joined Legal & General as a junior associate in 1987. Following stints at Willis Towers Watson, Mercer, and Vanguard Europe, he has been with SEI since 2017.
He also takes some reassurance from changes to the Pension Schemes Act before it became law. Critically, if TPR decides to wind up a master trust due to it failing to reach sufficient scale, it must prove no harm is being done to scheme members by doing this, something Charlton compares to a doctor’s commitment that any surgical intervention should not do greater harm to the patient.
SEI currently has 143 clients across a wide range of industries, and Charlton asserts that the firm is always actively looking to add more workplace schemes to that list. After acquiring Atlas Master Trust from Capita in 2021, SEI purchased the National Pension Trust from XPS Group in 2023, and Charlton says that SEI will continue to expand through a combination of organic growth and not shying away from potential future acquisitions.
Return on investment
Coming from a family of brewers and himself making beer in his free time, Charlton knows that sometimes you need to step back and trust the process.From this viewpoint the results can be startling. According to CAPAdata, the data arm of Corporate Adviser, in the five years to the end of 2025, SEI’s Flexi-default (Drawdown) fund strategy delivered a table-topping 94.9 per cent return for younger savers, with 30 years to state pension age. This compares to an industry average of 56.3 per cent.One way in which SEI’s funds have performed so well is an exclusive focus on equities during the growth phase, an asset class which has seen very strong returns since 2021. At SEI asset allocation is done on an almost entirely static basis, with Charlton reckoning that a young
saver who may not be retiring for over 40 years should necessarily be beholden to current market movements.
“We believe that the younger investor may be 22 and alive for another 75 years. That’s an awfully long period that you need to be investing for, which means you don’t need any sort of initial diversification from growth type assets, and by this we mean equities as well as private assets,” he says.
One reason for pushing for scale is the government argument that a larger master trust can more easily access asset classes such as private markets. However, Charlton dismisses this position as “total rubbish”.
“We have private markets capabilities within our function as an asset manager. We look after infrastructure portfolios, private equity portfolios and structured credit portfolios. That is what the scale brings. It’s not scale of the master trust itself, it’s the scale of the organisation.”
As of December 31, the Pennsylvania-headquartered SEI Investments has a total of $1.9 trillion in assets under management globally. Of this, there is also a dedicated $6 billion private assets programme.When it comes to its own current private markets strategy within the UK, SEI is in the process of launching an LTAF, and is seeking Financial Conduct Authority approval for
the vehicle.
Mandation fears
While SEI may be a signatory to the Mansion House Accord, Charlton is opposed to the mandation clause of the Pension Schemes Act. This piece of legislation caused the most opprobrium within Parliament during the bill’s passage, to the point where it appeared that the entire bill itself could run out of time to pass into law.
To get onto the statute books, revisions were made to this mandation clause, so it matches the commitments of the Accord, which in the case of DC schemes means a pledge of investing 10 per cent of funds into private market assets by 2030, of which half should be in UK assets. If these targets are not met by 2028, the UK government now has the power to force pension plans to invest into the asset class.
“Trustees have got a legal obligation to look out for members’ best interests, and being forced to allocate to something that they’ve decided might not be in members’ best interest has got to be a bad thing,” says Charlton.
“There could be a group of us fighting for what may be the wrong or lower quality asset, or its price might increase. Mandation also suggests that the government knows better than the fiduciaries who have responsibility for the members about what should be invested in, and trustees who have an absolute obligation to consider outcomes for members ahead of anything else.”
Investment inovation
Last year, SEI moved the remainder of its members (140,000 of its 207,000 in total) previously administered by Capita to third-party administrator XPS. The proprietary administration system overseen by XPS is known as Aurora, and Charlton describes it as built for the purpose of working on cloud software with the assistance of artificial intelligence.
However, he also insists that SEI’s most notable innovations still come from the investment space. “Here there is a belief that investments do not have to be one shape of index tracker just because they’re low cost.
“We are an active manager. We believe in goals-based investing, making sure that portfolios reflect the member’s need to have a sustainable income from a pot that has been accumulated throughout their working life, but also needs to last them through their non-working life.
“The innovation is building portfolios that actually meet this need, rather than bolting a few funds together that look OK on paper and are cheap enough to get by on.”
Dashboard challenges
As part of legislation first passed in 2021, the as yet upcoming pensions dashboards have been designed for individuals to see their pensions information, including their state pension, through a dedicated online portal.
All pension providers and schemes in scope are legally required to connect to the dashboard by October this year, and Charlton points out that SEI has already been connected for some time. However, he is keen to underline both the advantages and the potential drawbacks of the dashboard before it goes live.
“I’ll be interested to see how it will work with value for money. If you’re on the dashboard and somebody sees that they have accumulated eight pensions over their lifetime, all with different providers, their instinct will be to consolidate those with the best performer.
“Yet I do get nervous when I hear conversations about the dashboard being a revelation for financial education.
“What it will do is give you a lot of information. There’s a wealth of help that is also going to be needed to explain what you do with this information, and the dashboard itself will not provide that.”
Charlton also relayed his time attending the TUC Pension Conference each year. Here, speaking to individuals such as those belonging to the Bakers’ Union, he came to realise that such savers have primary concerns such as interest rates and guaranteed income in retirement, and may not want or need more complex investment advice when it comes to pension savings.