More than two-fifths (41 per cent) of defined contribution (DC) pension schemes are looking to consolidate over the next five years, new research from XPS Pensions Group has revealed.
In its report, 2022: The Year to Decide. To Govern or to Consolidate?, XPS discovered that, whilst 55 per cent of schemes indicated they were not planning on consolidating within the next five years, 24 per cent planned to do so in the next 12 months.
A third of schemes with assets of £100m or more expected to consolidate, with most planning on doing so in the next two to five years.
The report also recorded the motivations behind the schemes with no expectations to consolidate within the next five years, with the most common factor cited by respondents being that their current scheme offers appropriate value for money, which was mentioned by 23 per cent of those surveyed.
Respondents also cited their desire to retain control over governance (20 per cent) and valuing a more direct role in the financial wellbeing of members and staff (20 per cent) as reasons they were not considering consolidation.
XPS discovered that commercial master trusts were the preferred option for most of those intending to consolidate, with 76 per cent of those surveyed indicating it as their favoured choice, while an alternative DC trust-based scheme sponsored by the same employer was preferred by 6 per cent of respondents.
The ability to provide members better value for money was the most commonly cited reason for consolidation (14 per cent), ahead of robust governance available through consolidating their scheme (13 per cent), and perceived and actual regulatory pressure (13 per cent).
The report also recorded respondents’ opinions on the future of the industry, with 23 per cent citing retirement support and tools as the area where the industry needs to focus its activity on the most in relation to DC pensions schemes, while 23 per cent cited communication with members, and 12 per cent mentioned charges and transaction costs.
XPS Pensions Group head of DC, Sophia Singleton, commented: “This years’ value for money assessment will be the most important assessment DC schemes will undertake.
“They need to be prepared for the results and actions that must be taken to ensure compliance, but most importantly, to ensure value for money and good member outcomes.
“Trustees will need to act decisively to ensure DC savers can make the most of their retirement savings.”
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