On the go: Investment consultancy Willis Towers Watson is predicting a secondary defined contribution master trust market could emerge as one in eight early adopters of the pension solution have revealed they will look to review their providers.
According to WTW’s FTSE 350 DC pension study 2021 survey, nearly 61 per cent of employers that continue to run their own trust-based arrangement have indicated that moving to a master trust is under consideration in the next two years.
However, of those that already use a master trust, 12 per cent are considering reviewing their provider in the next two years.
Gemma Burrows, director of WTW’s retirement business, noted that for some employers who moved to a master trust five or more years ago, the options available in the industry have changed dramatically.
She said: “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 long term.
“There is some consolidation happening in the market at the moment, so things are still changing and they will not want to be revisiting the marketplace in a few years,” she continued.
“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 high-quality provision for their employees.”
Further findings from the study showed that the rate of environmental, social and governance adoption in default funds has almost doubled in the past year, with 30 per cent of schemes reporting that their default investment option is now ESG-focused, up from 17 per cent in 2020.
Moreover, 49 per cent of schemes have said that they plan to integrate ESG factors into their default investment funds in the future.
Burrows noted that ESG continues to gain significant focus with all scheme types, and within two years it is expected that almost half of schemes will have integrated ESG into their default option.
The study also found that contribution rates have remained stable throughout the pandemic, despite the financial strains that many companies and employers have been put under throughout the pandemic.
For employers matching DC schemes, the average contribution rates remain more than 17 per cent, and for non-matching schemes contribution rates average just under 11 per cent, both consistent with 2019 and 2020 levels.
Encouragingly, a significant minority of 16 per cent reported an intention to increase pensions generosity in the short term and none expect contributions to be reduced.
Burrows commented that while there had been concern this year that there would be a reduction in benefits and commitment as organisations grappled with maintaining financial stability and workforce planning, the survey results show a “compelling desire for organisations to improve member outcomes and enhance the support that is provided to them”.
