LONDON, July 12, 2021 – The DC master trust market is entering a new phase of maturity as some of the employers that adopted early are considering whether there are better options now available, according to Willis Towers Watson.
The company’s annual FTSE 350 DC Pension study 2021 shows that nearly two-thirds (61%) of employers that continue to run their own trust-based arrangement have indicated that moving to a master trust is under consideration in the next two years. But, revealingly, 12% of employers that already use a master trust are considering reviewing their provider in the next two years.
Gemma Burrows, director in Willis Towers Watson’s Retirement business, said: “For many employers that moved to a master trust five plus years ago, the options available in the industry have changed dramatically. Some of those employers are now starting to look around and consider whether there are more suitable, alternative providers that could offer better value or service to members.
“For many employers that moved to a master trust five plus years ago, the options available in the industry have changed dramatically.”
Gemma Burrows | Director in Willis Towers Watson’s Retirement business
“For those schemes it will be important to think very carefully about which provider can fulfil their needs over the long-term. There is some consolidation happening in the market at the moment, so things are still changing and they won’t want to be revisiting the marketplace again in a few years’ time. This also suggests that Plan Sponsors are still keen to have oversight of these plans, even after outsourcing the governance, to make sure they continue to deliver a valued and a high-quality provision for their employees.”
The rate of ESG adoption in default funds has almost doubled in the past year, with 30% of schemes reporting that their default investment option is now ESG focused (up from 17% in 2020). Furthermore, half (49%) of schemes say they plan to integrate ESG into their default investment funds in the future.
“ESG continues to gain significant focus across all scheme types and within two years it is expected that almost half of schemes will have taken the step of integrating ESG into the default option. This demonstrates a commitment from plan sponsors to make it easier for members to invest in a way that takes these important factors into consideration. Schemes are increasingly aware that ESG can form an important aspect of engaging with members,” said Burrows.
Despite the financial strains many companies and employees have been put under throughout the pandemic, maximum matches contribution levels for FTSE 100 companies have remained stable. For employer matching DC schemes, average contribution rates remain over 17%, and for non-matching schemes contributions rates average just under 11%, both consistent with 2019 and 2020 levels. Furthermore, a significant minority (16%) reported an intention to increase pension generosity in the short term and none expect contributions to be reduced.
“There was concern this year we might see a reduction in benefits and commitment as organisations grappled with maintaining financial stability, and workforce planning. Far from this, what we see in this year’s results is a compelling desire for organisations to improve member outcomes and enhance the support that is provided to them,” said Burrows.
“Clearly it’s good news for employees that DC contribution rates held up during the recent challenging financial circumstances for many employers. However, we can see that from a retirement savings perspective less than 20% of companies enrol at a default contribution rate in excess of the minimum level on offer. Therefore, there may still be work to do to overcome inertia in decision making so individuals understand and take advantage of the more valuable contribution rates that could be available to improve their own outcomes.”
The FTSE 350 DC Pension study 2021 covers 95% of eligible companies in the FTSE 100 and 250 indices. Not included in the study are investment trusts and overseas firms that form part of the index but do not have a material workforce in the UK.
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.
