On the go: The rate at which FTSE 250 companies move to master trusts as their main defined contribution vehicle is set to accelerate over the next two years, according to a new report from Willis Towers Watson.
The consultancy’s FTSE 350 DC Pension Survey found that 22 per cent of FTSE 250 companies have adopted master trusts already, and this is expected to rise to 35 per cent in the next two years.
27 per cent of FTSE 100 companies are expected to utilise master trusts at the end of the same period.
The trend towards master trusts remains slow but steady, the WTW report says, while noting that “it is remarkable to think that master trusts now represent the chosen method of delivery of nearly one in four companies in the FTSE 350, given it is only a little more than seven years since they entered the mainstream market”.
The survey additionally found that five per cent of FTSE 100 companies and 13 per cent of FTSE 250 companies were “very or extremely likely” to change their DC investment vehicle in the next two years.
The change came at the expense of single-employer trust-based schemes. Among the FTSE 100, in the past two years there has been a seven per cent increase in the number of companies using a master trust, while use of DC own-trust schemes has fallen by 6 percentage points (to 39 per cent from 45 per cent) and contract-based schemes by 1 percentage point to 39 per cent.
Commenting on the survey, Gemma Burrows, director in Willis Towers Watson’s retirement business, said: “Little more than seven years since master trusts entered the mainstream DC pensions market, and just one year since the first master trusts started receiving authorisation from the regulator, they are already the retirement scheme of choice for nearly one-in-four FTSE 350 companies.
“As the Covid-19 crisis prompts employers to look more closely at efficiency savings, we are likely to see increased streamlining of trust-based processes as well as the continuing trend towards outsourcing of DC pension provision.”
The report also forecast a dramatic rise in the number of schemes integrating environmental, social and governance-based strategies. Currently, 16 per cent of DC schemes have integrated ESG into their default investment options, with a further 34 per cent of schemes expecting to do so in the coming year.
On this latter point, WTW associate director Henry Parker said: “With greater media and regulatory focus on these issues it is increasingly likely employees will want to make their views known to the scheme’s sponsors and this may represent a good opportunity to increase engagement.”
