The rise of the DC Master Trust
17 Mar 2020
The last few years have seen a remarkable growth in demand for DC Master Trusts. But what’s all the fuss about? Here we take a step back in time to look at where the Master Trust came from, and the various factors which have led to their recent rise in popularity.
A brief history of the Master Trust
A master trust is a multi-employer occupational scheme where each employer has it’s own division within the master arrangement. They’ve become a very popular solution in recent years, but they’re certainly not a new concept.
Since the 1970s, we’ve watched them shift from being a relatively niche option serving the needs of smaller employers, to today where they are increasingly seen as the DC vehicle of choice for employers.
- 1970s, 80s & 90s – Master trusts mainly used by smaller employers and executives attracted to the fact they allowed for much higher funding rates than standard pension arrangements.
- 2006 – Pension tax simplification legislation simplified scheme funding, bringing all pension arrangements under one funding regime. The new rules spelt the end for Master Trusts as their USP evaporated.
- 2010 – The master trust is resurrected. In response to auto-enrolment requirements, M&S search for larger employer solution that better suits their needs than a group personal pension (GPP). We revisited the benefits of a multi-employer scheme with M&S, and providers responded with a new version of the Master Trust, with L&G becoming M&S’s provider.
- 2010 - 2018 – Many more providers enter the market, quickly accounting for 35% of the workplace pensions market.
- 2018 - 2019 – the year of authorisation. From October 1st 2018 to March 31st 2019, master trusts needed to apply to The Pensions Regulator (TPR) for authorisation to demonstrate they have met the required standards. This tough authorisation process led to a large proportion to exit the market, thus reducing the number of providers from 81 to 37.
The rise of the Master Trust
Led by the introduction of auto enrolment in 2012, Master Trusts now account for a significant portion of the workplace pensions market. The assets of over 10 million UK DC savers are now invested in these vehicles.
By 2026, their share of the workplace pensions market is expected to grow from £20bn today to £400bn:
What’s all the fuss about?
The popularity of Master Trusts is due to the attractiveness of fully outsourcing DC delivery but, at the same time, retaining some of the attractive features of occupational pension schemes. Coupled with economies of scale and the significant downward pressure on pricing, it’s easy to see why they have appeal.
Read our top 5 reasons for considering moving to a Master Trust for more.