The Evolution of DC Master Trusts

History

Defined Contribution (DC) Master Trusts have become a cornerstone of the UK pension landscape, offering a cost-effective alternative to single-employer trusts and an efficient way to manage retirement savings for multiple employers and their employees.

Though they emerged as a niche product in the 1970s, DC Master Trusts only started to garner broader adoption in the UK workplace pension market following the 2012 advent of automatic enrolment.¹ As of 2023, Master Trusts are the DC vehicle of choice at 28% of FTSE 350 companies, up from just 6% in 2014.²

Scale

The DC Master Trust share of the workplace pensions market could expand to £400 bn by 2026, up five-fold from £80 bn in 2021, per Hymans Robertson LLP.³ That could reach £800 bn by decade’s end, according to chancellor of the exchequer Rachel Reeves.⁴

This increased scale could bolster the sophistication these schemes have in their investment strategies, according to analysis from the Department for Work and Pensions (DWP).⁵ That means these schemes could allocate a greater proportion of their capital to private markets and also incorporate model portfolios that target a particular balance of return and risk.

Consolidation

At the same time, while balances in DC Master Trusts have ballooned and their underlying investments have grown increasingly illiquid, the total number of Master Trusts plummeted from 90 to 37 following the 2018-2019 introduction of a requirement for Master Trusts to meet stringent criteria when applying to The Pensions Regulator (TPR) for authorization.⁶ As of Dec. 31, 2024, the total number of UK DC Master Trusts stands at 33.⁷

The robust assets under management (AUM) momentum DC Master Trusts are experiencing across far fewer schemes that are themselves invested in more unlisted assets means the administration of these trusts presents significant challenges, particularly in the areas of cash allocation and portfolio rebalancing, along with data management and client reporting. It may prove beneficial to utilize a “Cash Allocation and Rebalancing Application” (CARA), a solution that has seen success in Australia, in addition to an outsourced data management solution to enhance operational efficiency, streamline liquidity management and asset allocation changes, and attempt to improve investment outcomes for members. Get access to the full whitepaper by clicking "Download Report".