Fewer than 50 trustees now control more than half of all occupational defined contribution (DC) pension assets, raising fresh questions over accountability in the workplace pensions market, according to a new report
Research by LCP has found that the trustees of the seven largest DC master trusts oversee more than £160bn of assets. This meant the concentration of power in the DC sector was around 10 times greater than in defined benefit (DB), where its previous research found fewer than 500 trustees controlled more than half of DB assets.
The findings come as government policy continues to push DC schemes towards greater scale, including the creation of £25bn-plus ‘megafunds’ and increased pressure to invest in productive finance.
LCP said the shift could bring benefits through professionalisation, scale and improved governance, but warned that master trusts serving thousands of employers and millions of savers could make it harder for individual companies and members to make their voice heard.
It also warned that the Department for Work and Pensions’ recent consultation on trusteeship appeared to assume that governance concerns would largely be resolved once more savers were enrolled into larger schemes.
Steve Webb, partner at LCP, said: “The increasing concentration of power in the hands of a small number of trustees is extraordinary.
“While these individuals will be carefully chosen and typically highly expert, the model of having a handful of people overseeing huge ‘mega funds’ raises serious questions that the government has not so far addressed.”
He said more needed to be done to ensure trustees were properly accountable to employers and members, and that large schemes retained “scope for innovation and challenge”.
LCP identified five key themes from its research, which was based on data analysis and interviews with 15 senior industry figures across trustees, providers, employers and governance committees.
These included the consolidation of power among a small number of master trust trustees, the continued importance of providers, the changing role of DC trustees, and the weakening voices of employers and members in the master trust structure.
The report said providers remained powerful because they often shape day-to-day decisions, scheme design and investment ideas, even where trustees have formal oversight.
It also warned that DC trustees face a more demanding role as they respond to the new Value for Money framework, scale requirements, post-retirement duties and the government’s productive finance agenda.
Nathalie Sims, partner at LCP, said greater professionalisation of trusteeship should improve how schemes are run, particularly where trustees oversee multi-billion pound arrangements.
But she added: “It is also important that we have structures in place to make sure that there is plenty of independent challenge and advice for these ‘mega fund’ trustees, as well as diversity of thought among those who secure these crucial roles in the future of workplace pensions in the UK.”
