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Accelerated master trust adoption set to define DC scheme development in the next two years

Retirement
N/A

July 15, 2020

LONDON, 15 July 2020 – There is set to be further acceleration in the number of FTSE 250 companies moving to a Master Trust as their main DC pension vehicle in the next two years, according to the latest annual FTSE 350 Defined Contribution (DC) Pension Report from Willis Towers Watson.

The survey finds that currently 22% of companies have adopted master trusts and that the number is likely to increase over the next two years to 35% amongst the FTSE 250 and to 27% amongst the FTSE 100.

The increased use of master trusts has been at the expense of Trust-based DC schemes. For example, amongst the FTSE 100, in the last two years there has been a 7percentage point (pp) increase in the number of companies using a master trust, while use of DC Trust-based schemes has fallen by 6pp (from 45% to 39%) and contract-based schemes by 1% (from 40% to 39%).

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.”

Gemma Burrows
Director in Willis Towers Watson’s Retirement business

“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.”

Financial Wellbeing

Financial wellbeing continues to be an area of growing focus for organisations. Communication, engagement and education are the biggest components of companies’ programmes and most employers (68%) now offer some form of online support resources.  Over a quarter of companies (26%) now offer an alternative savings vehicle for all employees alongside their pension scheme.

ESG Adoption and Investment Options

Nearly one-in-five (18%) DC schemes are planning to change their default investment strategy in the next two years and the focus on Environmental, Social, and Governance (ESG) investment strategies in DC default funds is likely to increase. Currently 16% of DC schemes have integrated ESG into their default investment options, with a further 34% of schemes expecting to do so in the coming year. 

“ESG adoption is continuing to accelerate towards the mainstream, which is buoyed by increased legislative focus and looks set to be adopted by more DC schemes in the coming year. Trust-based DC schemes are slightly further ahead on ESG adoption, but master trusts and contract-based schemes are likely to catch-up in the coming year if intentions materialise into action,” said Burrows. 

At Retirement

The survey also found that a third (33%) of FTSE 100 and a fifth (20%) of FTSE 250 schemes are very likely or extremely likely to enhance their at-retirement support.

More than half (57%) of DC schemes now offer access to drawdown options. Whilst most (28%) offer drawdown access ‘in-plan’, there is an increasing movement towards offering this via a third party (17%), with some schemes (12%) offering access via both via third party and in plan.

“The FCA’s review of retirement outcomes highlighted the challenges members face in choosing their own benefits. Contract based providers are now required to provide far more support, but we see many companies looking to supplement this further with apps and online web tools,” said Burrow.

“We are seeing an increase in DC schemes offering drawdown access through master trusts, either as the existing pension provider or through a third-party partnership. The development towards better choice and more accessible options for members at retirement is to be welcomed, but still more than four-in-10 DC Schemes will not provide access to this facility in a cost effective and well governed way if their member want to enter into drawdown, rather than annuitise or take cash,”

About the survey

The survey covers 90% of eligible companies in the FTSE 100 and 250 indices. Not included in the study are investment trusts and overseas firms that form part of the index but do not have a material workforce in the UK.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.

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