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The Ascendancy of Defined Contribution Master Trusts in the UK Pension Landscape
Defined Contribution (DC) Master Trusts have solidified their position as a vital component of the UK’s retirement savings framework. They provide a cost-effective choice to traditional single-employer trusts, offering an efficient mechanism for managing pension provisions for a diverse range of employers and their workforces.
While these structures existed as a niche offering in the 1970s, their widespread adoption within the UK workplace pension market truly took off following the introduction of automatic enrolment in 2012. The impact is evident: by 2023, 28% of FTSE 350 companies utilized DC Master Trusts, a notable leap from the mere 6% recorded in 2014.
Exponential Growth and Enhanced Investment Capabilities
Industry projections indicate a substantial expansion in the DC Master Trust sector. Hymans Robertson LLP forecasts that the market share held by these trusts could surge to ยฃ400 billion by 2026, a fivefold increase from ยฃ80 billion in 2021. Looking further ahead, Chancellor of the Exchequer Rachel Reeves suggests this figure could reach ยฃ800 billion by the end of the decade.
This amplified scale is expected to foster greater sophistication in the investment strategies employed by these schemes, according to analysis from the Department for Work and Pensions (DWP). Consequently, Master Trusts might potentially be positioned to allocate a larger portion of their capital to private markets and to implement model portfolios designed to achieve specific balances of returns and risk.
A Trend Towards Consolidation and Operational Challenges
Concurrently, while the assets managed by DC master Trusts have grown considerably and their underlying investments have become increasingly illiquid, the overall number of Master Trusts has substantially decreased. This reduction, from 90 to 37, followed the implementation of stringent authorization criteria by The Pensions Regulator (TPR) between 2018 and 2019. as of December 31,2024,the UK DC Master Trust landscape comprises 33 entities.The combination of robust asset growth within a reduced number of schemes, coupled with a greater allocation to unlisted assets, presents considerable administrative hurdles. These challenges are notably pronounced in areas such as cash allocation, portfolio rebalancing, data management, and client reporting.To address these complexities, enhance operational efficiency, streamline liquidity management and asset allocation adjustments, and ultimately improve member investment outcomes, the adoption of a “Cash Allocation and Rebalancing Application” (CARA), a solution that has demonstrated success in Australia, alongside an outsourced data management solution, may prove beneficial.
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