TPR reveals further concentration in DC market; membership grows

The defined contribution (DC) market has been subject to further concentration over the past year, data from The Pensions Regulator (TPR) has suggested, revealing that the total number of non-micro schemes, including hybrid schemes, has declined by 11 per cent.

TPR's thirteenth DC Trust report, which provides a snapshot of the occupational DC trust-based pension landscape in the UK, also showed that the total number of micro and non-micro schemes, excluding hybrid schemes, has fallen by 2 per cent.

This means that, since the introduction of auto-enrolment in 2012, the number of non-micro schemes, including hybrid schemes, has fallen by 67 per cent, from 3,660 to 1,220.

In total, TPR confirmed that there are around 26,990 DC trust-based schemes, of which 90 per cent, representing 21,580 schemes, identified themselves as a relevant small scheme (RSS) or an executive pension plan (EPP).

This was alongside 36 authorised master trusts, which accounted for 23.7 million DC memberships, up from 270,000 at the beginning of 2012, and over £105.3bn in assets, excluding hybrid schemes.

Despite the concentration being seen in the DC market, TPR found that scheme memberships increased by 13 per cent over the past year, and 1069 per cent since the beginning of 2012.

In the past year, deferred memberships increased by 15 per cent, according to the figures, while active memberships have increased by 10 per cent and membership in non-micro schemes increased by 13 per cent.

The proportion of schemes being used for auto-enrolment (AE), however, remained the same at 2 per cent, with 98 per cent of memberships, 24.4 million out of 24.8 million, being in schemes that are being used for AE.

TPR also found that 69 per cent of all private sector workplace pension memberships. including active, deferred and pensioner, are in a micro scheme or a non-micro scheme, while 87 per cent of all those currently saving are investing into a micro scheme or a non-micro scheme.

However, the data also revealed that despite an increase in the reported asset values, average assets per member have fallen by two thirds (66 per cent) since AE was introduced in 2012.

According to the regulator, reported asset values for non-micro schemes stood at £143bn for 2022/23, representing a £29bn or 26 per cent increase on the previous year, and a 546 per cent increase since the beginning of 2012.

Contributions to non-micro schemes also increased by 17 per cent, compared to a 4 per cent increase in the year before.

However, while average assets per member increased since their lowest in 2020, rising 11 per cent over the past year, they have fallen by 66 per cent since the beginning of 2012.

Indeed, according to TPR, the average assets per membership at retirement this year was £5,000 in non-micro schemes, marking a 2 per cent decrease since the beginning of last year and 74 per cent decrease since the beginning of 2015.

More broadly, TPR noted that the use of default investment strategies for non-micro schemes excluding hybrid schemes has remained relatively stable over the last year, as 51 per cent of schemes, and 76 per cent of open schemes, use a default investment strategy.

Commenting on TPR's DC scheme return data, Broadstone head of policy, David Brooks, stated: “AE created a nation of pension savers, which had a natural drag on average pot sizes as millions began their accumulation journey from scratch.

"However, it is pleasing therefore that we are now seeing average assets per membership start to tick up with an increase of 11 per cent over the past year as the ratcheting up of minimum contributions starts to take effect.

“The risk to AE remains complacency around low contribution rates which is why we’re so disappointed by the government’s rejection of MPs calls for a timetable setting out further increases to AE contributions.

"It is a golden opportunity missed to capitalise on the burgeoning success of the programme and set workers on course for more comfortable retirements than is currently expected.

“We know the government is keen for more pension assets to be invested into infrastructure, unlocking this capital for the future of the country.

"However, the statistics show that 97 per cent of members use the default fund where we know trustees are often reluctant to allocate towards infrastructure. This is the extent of the government’s challenge when making the case that infrastructure investments will create value for members.”

Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, also suggested that while AE has been an "enormous success", "it is clear there is more work to be done".

"We do need to find ways of getting people to contribute more and the government has come under pressure to outline a timetable for the introduction of the 2017 AE reforms which would certainly have a positive effect if they can be introduced at a point when this crisis has passed," she stated.

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