43% of DC schemes are looking to consolidate over the next few years, according to recent research from XPS Pensions Group. Of which 76 % are looking to opt for a commercial mastertrust.
In its latest report, 2022: the year to decide. To Govern or to Consolidate? XPS found that more than half (57%) of the DC schemes surveyed were choosing to continue to govern for the next five years or beyond. Of this group, nearly a quarter said they are doing so because their current scheme offers appropriate value for money and a fifth said they are choosing to continue to govern over concerns that transferring the DC scheme elsewhere would reduce autonomy and the amount of input that the employer would have upon their staff’s financial wellbeing.
XPS cautions, however, that with increased pressure from the Government to consolidate, maintaining the status quo and continuing to govern will only get harder. DC schemes will have to compare themselves against others in the market and demonstrate that they are delivering good outcomes and value for members.
Sophia Singleton, Head of DC at XPS Pensions Group, said: “This years’ value for money assessment will be the most important assessment DC schemes will undertake. They need to be prepared for the results and actions that must be taken to ensure compliance, but most importantly, to ensure value for money and good member outcomes. Trustees will need to act decisively to ensure DC savers can make the most of their retirement savings.”
Other key findings include:
• Of the 43% that are looking to consolidate, XPS expects a large number of smaller schemes (i.e. with assets of less than £100m) to consolidate in the next 12 months, with 76% saying they are opting for a commercial Master Trust
• One third of schemes with assets of £100m or more expect to consolidate, with most of these doing so in two to five years’ time
• 76% of schemes surveyed feel the Government’s new DC governance requirements are significant but appreciate that they are necessary.
2022 is a crucial year for DC schemes following new regulations from The Department for Work and Pensions (DWP) that came into effect in October 2021. The Government believes that larger DC schemes deliver better member outcomes and wants smaller schemes to take decisive action and either meet new minimum governance requirements or consolidate into larger schemes.
Full Report - 2022: the year to decide. To Govern or to Consolidate
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