61% of employers may move to master trust pension

Back-to-basics on defined benefit to defined contribution transfers

Nearly two-thirds of employers that run their own defined contribution (DC) trust-based pension arrangement is considering moving to a master trust in the next two years.

As part of its annual FTSE 350 DC pension study 2021, which covers 95% of eligible companies in the FTSE 100 and 250 indices, Willis Towers Watson also found that 12% of employers that already use a master trust are thinking about reviewing their provider within the next couple of years.

The research revealed that despite the financial strains of the Covid-19 (Coronavirus) pandemic, maximum matches contribution levels for FTSE 100 companies have remained stable. The average contribution rates for employer matching DC schemes remained over 17% and non-matching schemes contributions rates averaged just under 11%, which were both consistent with 2019 and 2020 levels.

Meanwhile, 16% reported an intention to increase pension generosity in the short term and none expect contributions to be reduced.

In addition, the rate of environmental, social and governance (ESG) adoption in default funds has almost doubled in the past year, with 30% of schemes reporting their default investment option ESG focused, which is up from 17% in 2020. Nearly half (49%) of schemes plan to integrate ESG into their default investment funds in the future.

Gemma Burrows, director of Willis Towers Watson’s retirement business, explained that while it’s good news for employees that DC rates held up during the recent challenging financial circumstances, some employers are now starting to look around for more suitable, alternative providers that could offer better value or service to members.

“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,” she said.