With 2018 now firmly behind us, it’s time to dust of the crystal ball and start thinking about what next year might have in store. Of course, the first order of business for any crystal-ball gazer should be to get some clarity around the UK’s future relationship with the European Union…but, alas my crystal ball is of the master trust variety and so not much use in that department. So, without further ado, here’s what I think might happen in the world of master trusts this year:
As new requirements for UK master trusts to be authorised by the Pension Regulatorcome in to effect in 2019, this will be the year when the future shape of the master trust market becomes clearer as the number of currently operational providers goes into sharp decline. Those master trusts left standing will have a very clear focus on their core target markets. Once authorised, master trusts can expect to see a high demand from employers who have been waiting to move and will need to show that they are prepared and resourced to meet the varied demands of onboarding clients. A particular challenge to doing this will come from the turbulent investment markets that will present risk and uncertainty as trustees seek to move their assets into master trusts. Brexit is blamed for a lot of that turbulence but there are other underlying causes for that which are not going away..
Brexit and investment
Like so many other sectors, the pensions industry won’t be immune to the Brexit upheaval – especially as the disruption it causes will likely lead to a fall in investment values. Understandably, this is worrying for those nearing retirement and anyone saving towards their pension. During these uncertain times, pension providers and businesses will need to help steer members away from panicking and making ill-informed changes to their investments or contributions that could damage long term outcomes. Providers who have diversified away from an over reliance on the UK and into other asset classes will be much more resilient – making sure that members are aware of this will help them be more sanguine about the turmoil.
On a more positive note, this will also be the year where more master trusts adopt environmental, social and governance (ESG) investment strategies, and use their growing scale to enhance the sophistication of their investment offering increasing potential risk adjusted returns without increasing member costs. Last year, we included an ESG overlay on the majority of equity investments in the default fund to put us in the forefront of sustainable investing.This not only supports the increasing member demand for sustainable investment but improves member outcomes, other DC master trusts are likely to want to follow.
Clear communication is key to ensuring that members are equipped to make the best long-term retirement decisions. Over the past few years we’ve seen a number of innovative approaches to pension communication emerge, but I believe 2019 needs to be the year when member engagement gets to the top of the ‘to do’ list.
Our own ageOmeter, which improves members’ engagement with their pensions by giving them a relatable metric – the age at which they can afford to retire – has seen a great uptake and we look forward to building on this momentum in 2019. The appointment of Caroline Fawcett (who has spent over a decade helping organisations put customers at the heart of their business) to our board earlier this year, will also help us further improve our member experience this year.
2019 is going to be a busy year for not only the pension industry, but for master trusts too. The concentration of the market and more focus on member engagement promise better outcomes for members from their pension savings.