Time for big employers to consider DC master trusts? - KPMG United Kingdom
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Time for big employers to consider DC master trusts?

Time for big employers to consider DC master trusts?

Should larger organisations join the master trust revolution?


Director, DC Solutions

KPMG in the UK


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Time for big employers to consider DC master trusts?

Following the arrival of auto-enrolment, millions of pension savers are now members of DC master trusts – workplace pensions serving multiple employers within one scheme. This relatively new style of pension has proved particularly popular with smaller employers. The question for larger organisations is whether they should now join the revolution.

Ninety-eight percent of employers who enrolled during 2015/16 used master trusts to meet their auto-enrolment obligations. Up until now, most of these organisations have been smaller employers, however, we are now seeing a real trend in larger organisations also switching their DC provision to master trusts. In our view, master trusts provide a useful middle option for those who like the paternalism of a trust based structure, but want less corporate risk. 

There are three main reasons why a master trust might be a solid option for larger employers and their employees: 

  • Outsourced legal oversight: A master trust enables employers to outsource legal oversight to an independent, professional board of trustees. This can prove attractive to employers and trustees who don’t have the resources (time or money) associated with running their own trust-based arrangement, but equally don’t want to move to the other extreme of a group personal pension.
  • Improved offering: A number of master trusts provide access to the full range of at-retirement pension freedoms from within the scheme. For the increasing numbers utilising flexi-access drawdown, this means a cleaner transition, benefiting from the same investments, charging and oversight structures they experienced during the accumulation phase. 
  • A modern scheme: Master trust trustees have the same legal duty as other trustees to act in the best interests of their members. Done correctly, the result can be an evolving offering taking into account the needs of its members and the latest thinking on investment strategies and member engagement. The benefit to employers and its employees is obvious: the employer has the comfort that it is offering a quality pension scheme whilst at the same time reducing its legal obligation (and often cost), and its employees are members of a well governed modern scheme. 

Like most things, no one size fits all. Employers wishing to retain complete control for example, may prefer to operate their own trust based arrangement, whilst those wanting a hands-off approach, may prefer a group personal pension structure. For the majority that sit somewhere in the middle however, a master trust provides an attractive option, and of course some control can be retained via a dual governance approach. 

What’s the catch?

The increase in popularity of master trusts doesn’t mean they are without issue. 

Firstly, there are currently very few barriers to entry. This has led to an influx of smaller providers and concerns over the future stability of the market. According to The Pensions Regulator, there were as many as 87 master trusts registered with scheme members based on the 2015/16 levy year.  It is difficult to see how any but the largest will survive, particularly with the advent of The Pensions Act 2017 which will require master trusts to meet much more onerous requirements. In the meantime, at the time of writing, only 21 were listed as having obtained the voluntary master trust assurance framework. That leaves three quarters with no independent verification at all.

The master trust market contains a number of different models. There are ’off-the-shelf’ schemes designed for the mass market; those operated by traditional insurance companies with the associated ’bells and whistles‘ such as access to the latest member tools and wider savings solutions, and more recently, the advent of ’advisor-led‘ master trusts.  With the latter we are seeing advisory firms of varying sizes entering the provider space, with a spectrum of different structures. 

Choosing the right provider is key, and while increased competition is to be welcomed, the need for thorough due diligence and independent review is now more important than ever before.


KPMG assess the leading master trusts in the UK across the various structures, including off-the-shelf, traditional-insured and adviser-led arrangements. We pride ourselves on our independence and the insight we bring.

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