New research from the Pensions Regulator indicates that scaling up defined contribution (DC) pension schemes will not bring guaranteed economies of scale.
The regulator published a report today (8 May) bringing together initial research into DC consolidation, performance, and asset allocation from the UK and Australia.
The report follows the finalisation of the Pension Schemes Act, which contains requirements for DC master trusts and group personal pensions (GPPs) to have default investment funds of at least £25bn in order to continue qualifying as auto-enrolment vehicles.
TPR’s report found that larger schemes typically had lower costs per member and could reduce management costs by bringing functions in-house, such as private markets.
However, the findings indicate that the benefits of scale are not as clear-cut as the government has previously stated.
“There is some evidence emerging of economies of scale benefits, but this is not unequivocal or guaranteed, therefore the market must remain alert and responsive to risks and opportunities,” TPR’s report stated. “It will take time for UK pensions to build the size and the systems needed to take full advantage of the opportunities of scale.”
Notably, the regulator cited research from the Department for Work and Pensions (DWP) that “generally shows no correlation between [asset] size and investment performance, whether for master trusts or GPPs in the UK”.
Separate government research also found that the median annualised investment performance was higher for single-employer trusts than for multi-employer schemes.
Sam Cobley, partner and investment expert at LCP, said: “The Pensions Regulator’s analysis highlights several potential advantages to members of larger pension schemes, including lower per-member costs.
“Larger schemes may also be able to bring investment management in-house, particularly in areas such as private markets, lowering the cost of such asset classes that are likely to be increasingly important as schemes grow and diversify.
“However, the evidence is not all one way. TPR notes that single-employer trusts, when supported by appropriate investment advice, tend to have higher average investment returns than the average master trust.”
TPR has been pushing for years for “fewer, larger schemes” in a drive to raise standards. It recently warned that trustee boards could be putting members at risk if they unnecessarily delay consolidation decisions.
The number of non-micro DC and hybrid schemes fell by 15% over the past year, dropping from 920 in 2024 to 790 in 2025, recent data from the regulator has shown.
