One in three single-employer trusts and one in five contract-based schemes expect to move into a master trust within the next five years, according to a survey conducted by Aon.
The main driver for trust-based consolidation is the time and resource needed for operating the scheme, cited by 40 per cent of respondents, while contract-based potential switchers cited better member outcomes as the main reason for switching, with 47 per cent citing this reason.
Aon says some of these contract-based potential switchers, who would be moving away from schemes that already keep sponsor responsibilities to a minimum, will be from legacy DC providers.
The survey also found there was very low appetite for alternative investments such as infrastructure and private equity.
While drawdown is now the most common target for DC default strategy, just 34 per cent of schemes had put in place a preferred drawdown provider. Of these, 84 per cent were with the current pension provider.
The survey found that respondents want to offer competitive, ‘good value’ DC schemes – with most wanting to do more than the minimum level required – but many are not measuring whether they are succeeding in meeting their objectives.
The research found more schemes aim to benchmark contribution rates against peers (other schemes) than aim to deliver sufficient funds for employees to retire, while one in three schemes do not measure progress against their objectives.
Two thirds of respondents do not know the projected outcome for a typical pension scheme member and just 25 per cent of employers consider pension outcomes in the context of future workforce planning.
The survey found that 32 per cent of schemes currently communicate targets to help employees plan for a comfortable level of savings for retirement, while wider financial wellbeing support – to help employees understand how pensions fit in to their overall wealth – is becoming widespread. Even so, schemes are not good at measuring whether employees engage with this, or in measuring its effectiveness.
Aon principal consultant John Foster says: “While it’s right that there has been a strong focus on what is being paid into DC schemes, it’s vital that the focus is not just on the short term but just as strong on what the outcome will be. We have been actively helping sponsors and trustees of DC schemes to set objectives aligned to individual member needs as well as meeting the employer’s strategic goals.
“It is key to then make sure that there are robust measures in place to be able to check progress against these objectives and to identify where resources can be best focused. However, at present we feel that the measurement process is rather hit and miss and doesn’t actively demonstrate value.”
Aon partner and head of DC Investment proposition Jo Sharples says: “Many schemes are moving to a master trust structure to help with their aim of delivering better member outcomes. We believe that this could help them to free up time and resource to focus on retirement adequacy or for the master trust providers themselves to pick up on the adequacy challenge.
“Either way, it is imperative that those running pension schemes understand the areas where they can really add value and which areas could better be delivered through a professional third party.”
Aon senior consultant Steven Leigh says: “The PLSA’s Retirement Living Standards is a great initiative to get people thinking about how much they really need to be able to retire in the way and at the time they would choose. However, it also important to remember that a DC pension will not be the only source of income in retirement for most.
“We are working with schemes to help their members understand the entirety of their likely retirement wealth, which could include the state pension, pensions from previous employment and other savings so that they can see how much they will actually need to aim for from their current DC scheme.
“The forthcoming pensions dashboard could provide an industry-wide solution for the pensions savings aspect, but until then the onus is on individual schemes or employers to provide an holistic view of likely income in retirement.”
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