Four in 10 DC schemes are looking to consolidate

More than three-quarters of DC schemes, meanwhile, are keen to opt for a commercial master trust, XPS’s survey found.

Pensions minister Guy Opperman told The Investing and Saving Alliance’s Annual Retirement Conference 2022 in March that he was not convinced that small schemes provide value for money.

“Given the fundamental requirement is better outcomes for members, I don’t believe, particularly in the DC world, that small is in any way the right way forward,” he said.

He suggested that the issue was less about whether consolidation was the right way forward, and more about the pace at which the DC industry moves towards an Australian-style model, emphasising the importance of scale, not least for the access to investment that it brings.

XPS predicted that a large number of smaller schemes (setting this bar at those with assets less than £100mn) within the 43 per cent of schemes looking to consolidate would do so within the next 12 months.

The consultancy’s findings also revealed that the remaining 57 per cent of respondents were choosing to continue to govern their scheme for at least the next five years.

Nearly a quarter of this group said they were doing so because they believed that their scheme offered appropriate value for money.

A fifth of this group, meanwhile, said that they would continue to govern over concerns that transferring their DC scheme elsewhere would “reduce autonomy” and the employer’s ability to influence their staff’s financial wellbeing.

A third of schemes with at least £100mn in assets are expected to consolidate, with the majority doing so in two to five years’ time.

“This years’ value for money assessment will be the most important assessment DC schemes will undertake,” said Sophia Singleton, head of DC at XPS. 

“They need to be prepared for the results and actions that must be taken to ensure compliance, but most importantly to ensure value for money and good member outcomes.”