More than a third of FTSE250 companies will offer master trusts as their main pension vehicle within the next two years, according to a new report.
Willis Towers Watson’s annual DC pension report predicts an acceleration in the uptake of master trusts over this period, but this trend will be particularly pronounced among smaller listed companies.
It said that 22 per cent of all companies currently offer a master trust DC solution. This number is set to rise to 35 per cent amongst FTSE250 companies within two years, and to 27 per cent among larger FTSE100 companies.
This increased use of master trusts is likely to be at the expense of trust-based DC schemes. For example in the last two years there has been a 7 percentage point increase in the number of companies using a master trust. At the same time the use of a DC trust-based schemes has fallen by from 45 per cent to 39 per cent, and the number of contract-based schemes has declined from 40 per cent to 39 per cent.
The report looked at a number of other trends in the DC pension sector. It found that financial wellbeing continues to be an area of growing focus for organisations. Communication, engagement and education are the biggest components of companies’ programmes and most employers (68 per cent) now offer some form of online support resources. Over a quarter of companies (26 per cent) now offer an alternative savings vehicle for all employees alongside their pension scheme.
The report also predicted a shift towards more responsible investment solutions. Nearly one in five (18 per cent) DC schemes planning to change their default investment strategy in the next two years, and Willis Towers Watson says the focus on Environmental, Social, and Governance (ESG) investment strategies in DC default funds is likely to increase. Currently 16 per cent of DC schemes have integrated ESG into their default investment options, with a further 34 per cent of schemes expecting to do so in the coming year.
Burrows adds: “ESG adoption is continuing to accelerate towards the mainstream, which is buoyed by increased legislative focus and looks set to be adopted by more DC schemes in the coming year.
“Trust-based DC schemes are slightly further ahead on ESG adoption, but master trusts and contract-based schemes are likely to catch-up in the coming year if intentions materialise into action.”
The survey also found that a third (33 per cent) of FTSE 100 and a fifth (20 per cent) of FTSE 250 schemes are ‘very likely’ or ‘extremely likely’ to enhance their at-retirement support.
More than half (57 per cent) of DC schemes now offer access to drawdown options. Whilst most (28 per cent) offer drawdown access ‘in-plan’, there is an increasing movement towards offering this via a third party (17 per cent), with some schemes (12 per cent) offering access via both via third party and in-plan.
“The FCA’s review of retirement outcomes highlighted the challenges members face in choosing their own benefits. Contract based providers are now required to provide far more support, but we see many companies looking to supplement this further with apps and online web tools,” said Burrow.
However she adds warns that too many schemes were still not offering adequate options for members when it comes to retirement choices.
“The development towards better choice and more accessible options for members at retirement is to be welcomed, but still more than four-in-10 DC schemes will not provide access to this facility in a cost effective and well governed way if their member want to enter into drawdown, rather than annuitise or take cash.”
Willis Towers Watson’s retirement business director Gemma Burrows says: “Little more than seven years since master trusts entered the mainstream DC pensions market, and just one year since the first master trusts started receiving authorisation from The Pension Regulator, they are already the retirement scheme of choice for nearly one-in-four FTSE 350 companies.
“As the Covid-19 crisis prompts employers to look more closely at efficiency savings, we are likely to see increased streamlining of trust-based processes, as well as the continuing trend towards outsourcing of DC pension provision.”
