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Use of master trusts doubled since 2015

Defined contribution pensions have become firmly enshrined as the norm for employees

The use of master trusts by defined contribution (DC) schemes in the FTSE 350 has almost doubled since 2015, according to research by LifeSight, Willis Towers Watson’s UK DC master trust.

The 2017 FTSE 350 DC Pension Scheme Survey collected information from 259 companies, and found that nearly one in six (15%) FTSE 350 companies are now using master trusts as their primary DC pension vehicle, up from 8% in 2015.

This rise comes as the number of defined benefit (DB) closures continues to increase, up 8% since 2015. DC has become firmly enshrined as the norm for employees, with nearly all (98%) FTSE 350 companies now offering a DC pension to new hires.

Jo Kite, managing director of LifeSight UK, said the research shows a change in attitude. “With the use of master trusts doubling since 2015 we are now clearly seeing that master trusts are being recognised by employers and existing trustees,” she said. “While contract-based arrangements usage has marginally shrunk master trust usage has doubled, showing a clear direction of travel. As many companies are still only part way through this process we expect the trend to continue.”

She highlighted the benefits of a master trust. “At LifeSight we believe one factor driving the adoption of master trusts and trust-based schemes in general is the flexibility and ease with which they offer members a diverse range of retirement options,” she said. “This includes drawdown, which is becoming a more frequent choice for members.

“Given that the freedoms were only introduced two years ago the rate of adoption is quick, suggesting that trustees have a fiduciary duty to look into solutions for their specific schemes. Crucially, emphasis should be on the strength and quality of governance and management of any master trust under consideration.”

To find more about the benefits of master trusts and selecting the right scheme download our free Master Trust Guide ebook, produced in partnership with Aon. HR magazine and Aon have produced this as a definitive guide to understanding how they work, the benefits they can bring, what the future holds for this type of scheme, and how to best communicate this as part of wider financial education.