Master trusts will account for £400bn of savers assets by 2045, according to the Department for Work and Pensions (DWP).
The consolidation of defined contribution schemes, with a move to larger pension providers, is an inevitable product of pension reform, delegates at the Pensions and Lifetime Savings Association’s annual conference were told.
The event, which took place in Liverpool this week, included a session 'The future of DC: Consolidation, performance and engagement'.
Julian Barker, head of policy collective defined contribution and DC decumulation at the DWP, expected the assets in defined contribution (DC) schemes to grow to £1.3tn within 20 years, three times the amount it is now.
“Master trusts are now the dominant form of DC saving in the trust based space, and in two decades time, we could reasonably expect master trust to hold about £400bn in assets."
Barker said this was not to say there was still a role for well run single employer trusts as long as members “benefit properly” from their schemes.
DC pensions faced several challenges, that they were driven by a low cost, rather than saver value model, that the current rate of saving was unlikely to deliver adequate living standards and that people were taking their pension as a full cash withdrawal at retirement.
Barker said: “There are many reasons for that, and it is the right thing for some people to do, but it won't be appropriate for everyone.”
Barker said there was a case for reform and these issues were being addressed by the value for money framework consultation and the productive finance initiative.
He said: “The pensions bill will also deal with the consolidation of small deferred pension pots by authorising providers to act as aggregators.”
“The intention here is to help remove costs and help individuals keep track of their savings and therefore get better value from them.”
Barker also welcomed the launch of the first CDC pension by the Royal Mail and saw the role of CDCs as key to solving issues of value for money as well as under saving.
Consolidation
Laura Myers, head of DC at the PLSA, told delegates minimum contributions needed to rise to 12 per cent.
“I also hope we think about people renting in retirement, the outcomes that they need are so much harder, so we need to think about it all as part of the same problem.”
Patrick Heath-Lay, chief executive of People’s Partnership, said savers must remain at the heart of any review. He also questioned how much consolidation could realistically take place in the master trust space.
“Numbers of five and 10 have been bandied around in various different reports. I think that's overly consolidated.
Heath-Lay also warned against over regulation. He said: “We shouldn't be in a position where master trusts are being forced to change their proposition over things like losing a mandate over a basis point.”
