What does 2018 have in store for master trusts?

From the much anticipated Department for Work and Pensions’ auto-enrolment review, the announcement of the authorisation regime and the two-year anniversary of pension freedoms, 2017 has been an eventful year for the master trust industry. But what will 2018 bring? In this article, I discuss my predictions for the master trust market next year and their implications for the future of the industry.

The year master trusts come of age

This year (2017) saw the master trust market in the UK truly mature within the defined contribution (DC) space. Over 80% of all individuals enrolled in a DC pension scheme in the UK are in a master trust (source: tPR) having become the choice for employers’ auto-enrolling their employees for the first time, suggesting that this growth trend is set to continue in 2018.

The Pension Schemes Act

With the Pension Schemes Act authorisation regime becoming open to applications in October 2018, the industry faces new challenges. Introduced to ensure higher standards and greater security for members, the recently published regulations require all master trusts operating in the UK to seek approval to continue in business.

As a result, we can expect consolidation in the market. We estimate that the number of master trusts in operation will more than half to around 20 or 30 from over 90. Those left standing will be the well-established auto-enrolment providers, the larger insurers and the employee benefit consultant providers.

Ahead of the act coming into force, the regulator will spend time working with master trusts to help those who want to seek authorisation and to manage those who don’t want out of the market. The regulator has to ensure that those who exit the market do not disadvantage members or lead to a disorderly market.

The authorisation regime should spell good news for members and prospective employers, as most of the remaining master trust providers will be able to achieve the scale which they can then leverage to improve their offering to members.

Moving to master trusts: a matter of when not if

With both the pensions industry and businesses facing an increased pension governance burden, the migration of larger single employer trusts into master trusts will be a matter of when, not if, in 2018. A move to a master trust not only allows businesses to outsource the governance burden of their scheme but also to save money.

By drawing on economies of scale in all areas, master trusts are also able to deliver smarter, better value options for their members.

What’s more, the move to master trusts will become an increasingly viable option for larger single employer trusts as they demonstrate their ability to deliver for larger employers and the hurdles of transition easier to overcome.

Upping their game

As well as the Pension Schemes Act requiring the industry as a whole to improve its governance standards, next year will see master trusts up their game when it comes to the member experience. We expect to see more providers embracing technology to create an improved, more bespoke and engaging member experience. Using digital techniques such as gamification can, for instance, encourage millennials – known for their lack of interest in pensions – to engage through fun, game-like processes rather than the traditional brochures with technical terms that are difficult to understand and a big turn-off for members.

2018 is evidently going to be a busy year for the master trust market, with increased regulation putting further emphasis on good governance and schemes waking up to the potential of technology for member engagement. The resulting developments will not only benefit members of master trust schemes but their employers too. With that in mind, could this be the year that you move your business’s pension scheme to a master trust?

To find out more about the benefits of joining a master trust and how to go about doing so, you can contact a member of the LifeSight team here.