Master trust retirement outcomes 5% above pre-pandemic levels

Master trust providers must support members in aligning pre-retirement savings with possible spending needs in retirement, the consultancy warned in new research, which highlighted that schemes were likely to take up the master trust structure at a faster rate than expected. 

In its analysis of how recent market conditions have impacted fund performance and outcomes for different members, Hymans called for “seamless transitions” between accumulation and decumulation as a priority for the industry, as well as the availability of guidance so members could make the right decisions. 

It said digital engagement is one area likely to aid this process by helping members understand the level of income they might need in retirement, how best to utilise different retirement income sources, and ascertain whether they are likely to achieve their retirement goals.

Engagement would also help them to lay out steps to improve their chances of meeting those goals, according to the report. 

“Members today are faced with complex retirement decisions but typically have a lack of knowledge about who to turn to for help and advice,” said Shabna Islam, head of DC provider relations at Hymans Robertson. 

“Master trust providers must work to ensure that members do not blindly head through accumulation in an inappropriate default strategy, and approach retirement unprepared for decisions they must take around how to fund a sustainable retirement income,” she added. 

The report’s growth phase projections revealed that while cautious strategies performed well during market stress, they were unlikely to maintain outperformance and lead to better outcomes for members. 

Lower volatility strategies were also less likely to provide better downside protection over long time horizons, it said. 

‍During consolidation, the report revealed there to be a level of uncertainty around member outcomes, which varied significantly across providers. Riskier strategies offered higher predicted returns, though members were found to be vulnerable to market volatility and shocks. 

Investment strategy during the pre-retirement phase must be aligned to members’ likely future decisions though, increasingly, investors must also adopt higher risk levels as pots increase in size, and members look to draw down from their pensions, the report said. 

While conservative strategies meant a range of outcomes that was narrower here than in other phases, evidence suggested members were taking on varying levels of risk. 

At the Pensions and Lifetime Savings Association’s investment conference, one expert called for regulators to re-examine frameworks for at-retirement guidance, to help trustees support members considering their options.

Alicia Harrington-Clark, head of DC, master trusts and lifetime savings at the PLSA, called for “further clarification” on the actions trustees might take to help savers at retirement and during retirement. 

Hymans argued that the onus should be on master trust providers to ensure members do not “sleepwalk” through accumulation in a default strategy inappropriate to their needs, and move into retirement “unprepared for the decisions they will have to take”.

“As we enter a new post-Covid period, our analysis shows that there is a range of investment approaches adopted by providers, with some expected to support better member outcomes than others,” Islam said. 

“Providers must ensure that improving member engagement remains a focus and is supported by effective, targeted communications to encourage better retirement planning, and decision-making, before it is too late,” she added. 

With pension freedoms widening the range of factors members must consider when managing their savings, Hymans pointed to a “significant guidance gap”, especially for those who cannot afford, or are reluctant to pay for, advice.