Consolidation to continue as DC schemes 'struggle to measure up' - Aon

One in three trust-based, and one in five contract-based DC schemes, expect to move to a master trust in the next five years amid governance and review concerns, new research has revealed.

The report published by Aon, ‘How do you measure up? UK Defined Contribution Pension Survey 2020’, revealed that there was a "clear message” of schemes increasingly turning to delegation in various forms, with a growing number of schemes likely to move to a master trust structure in the next five years.

Forty per cent of trust-based schemes attributed this to the time and resources needed to operate a DC plan, with 19 per cent citing governance requirements.

Meanwhile, 47 per cent of contract-based schemes cited an expectation that a different scheme structure would deliver better member outcomes, with a further 32 per cent of this subset pointing to governance issues as a motivating factor.

The Pension Regulator's (TPR) DC Trust Report recently revealed that nine in ten active savers are already in DC master trusts, with the trend towards consolidation expected to continue.

Aon partner and head of DC investment proposition, Jo Sharples, commented: "Many schemes are moving to a master trust structure to help with their aim of delivering better member outcomes.

"We believe that this could help them to free up time and resource to focus on retirement adequacy or for the master trust providers themselves to pick up on the adequacy challenge.

“Either way, it is imperative that those running pension schemes understand the areas where they can really add value and which areas could better be delivered through a professional third party".

Aon’s report also found that trustees are “struggling” to measure the effectiveness of various aspects of their DC schemes.

It showed that one in three DC schemes do not measure progress against their objectives, with more schemes aiming to benchmark contribution rates against other schemes than aiming to deliver sufficient funds for members to retire on.

In addition to this, 65 per cent of respondents were unsure of the projected outcome for a typical pension scheme member.

Aon principal consultant John Foster, however, emphasised the need for schemes to focus on long-term member outcomes alongside employer's strategic goals.

“It is key to then make sure that there are robust measures in place to be able to check progress against these objectives and to identify where resources can be best focused.

"However, at present we feel that the measurement process is rather hit and miss and doesn’t actively demonstrate value," he explained.

Aon also highlighted the Pension and Lifetime Savings Association (PLSA) target to have 90 per cent of schemes using it's Retirement Living Standards to help members understand retirement targets, stating that “the industry has a long way to go”.

However, 65 per cent of DC schemes said that they would like to spend more time communicating with employees on pensions, with a further 32 per cent of schemes already communicating targets to help employees plan for a 'comfortable' level of retirement savings.

This also follows recent research from Portafina, which revealed that over a quarter of members believe £11,000 a year is sufficient to live on in retirement, nearly £23,000 below the PLSA’s ‘comfortable’ standard.

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