While economies of scale could deliver benefits for defined contribution (DC) scheme members, these gains are not guaranteed, analysis by The Pensions Regulator (TPR) has found, warning that the market must remain alert as consolidation continues.

TPR published the review of the evidence on the link between scale and performance in DC pension schemes, drawing on findings from the UK and overseas on the extent to which the current drive to scale and consolidation could improve member outcomes.

The report said there was some emerging evidence of economies of scale benefits, but that it was “not unequivocal or guaranteed”, and warned that the market “must remain alert and responsive to risks and opportunities”.

The report also highlighted that it would take time for schemes to build the size and infrastructure needed to fully realise the potential advantages of scale.

The analysis showed that total costs per member generally decreased as scheme size increased.

Furthermore, the smallest schemes had a higher median average cost per membership, and smaller schemes showed greater variation in costs per membership.

However, when looking at investment returns and scale, the picture was more mixed.

The analysis noted a Department for Work & Pensions (DWP) report on DC market trends that generally showed no correlation between asset under management size and investment performance, whether for master trusts or group personal pensions (GPPs) in the UK.

Furthermore, Annex E of the Pension Provider Survey 2024/25 showed that the median annualised investment performance was higher in single-employer trusts than in multi-employer schemes.

However, it also showed wide performance variations between the highest and lowest performers.

The report also highlighted CEM research showing that scale benefits were most evident in the ability to manage private assets in‑house, reducing costs and boosting net returns.

The report pointed out that the forthcoming Value For Money (VFM) framework would provide standardised, comparable data on returns, thereby sharpening the focus on net returns and return volatility when assessing good outcomes for members.

Commenting on the research, LCP partner and investment expert, Sam Cobley, said larger schemes can benefit from lower per‑member costs and the ability to manage investments in‑house, particularly in private markets, reducing costs and supporting greater diversification as schemes grow.

“However, the evidence is not all one way,” Cobley stressed.

“TPR notes that single-employer trusts, when supported by appropriate investment advice, tend to have higher average investment returns than the average master trust.

"More broadly, DWP research found no clear correlation between scheme size and performance for either master trusts or group personal pensions.”

Cobley added that overall, the research revealed that while there could be benefits to members of moving from smaller schemes to larger master trusts, there were also members who “get a great outcome by being part of a well-run single employer trust”, especially where the employer is meeting the costs of running the scheme.

“It is clear that there is not a one-size-fits-all right answer to what is best in any workplace or for any group of workers and that scale is not a panacea for good outcomes in DC,” Cobley concluded.

TPR said it planned to publish further evidence on asset allocation later in 2026 and would continue to track developments over time.

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