Standing the test of time

In a statement published in January of last year, The Pensions Regulator (the Regulator) suggested the UK’s defined contribution (DC) market had consolidated by nearly 40% over the last decade.¹

To anyone working in the DC market, this is no surprise. Clearly, the Regulator has been watching other DC markets around the world, concluding that a smaller market of bigger and more professional arrangements brings with it better member outcomes. The Australian market is often cited as the poster child in this respect.

Historically, the Regulator has really only been able to encourage consolidation by increasing the regulatory burden shouldered by trustees. If running a single trust scheme became too hard, then those responsible turned to a larger outsourced provider like a master trust.  It’s a solution that’s not just confined to pensions. Generally, if something can be done better and more cost effectively—with less disruption to the business—then for many employers, it can and should be outsourced.

Now, for the first time, this will change—the Regulator will have powers to enforce the wind-up or consolidation of schemes not demonstrably adding value for members. The reasoning behind this is understandable, and the new value for members (VFM) framework, touched upon by the Chancellor in his Mansion House speech this July, will certainly speed things up.

That said, market consolidation isn’t just about single trust schemes entering into master trust arrangements—master trusts are accelerating market consolidation in their own right by either buying up their would-be competitors, being bought themselves, or joining forces. Since the requirement for master trusts to be authorised was introduced, their numbers have dropped considerably². It’s reasonable to assume that only the very largest master trusts will survive. 

If this all sounds rather ominous, then let me clarify something—in many ways, consolidation can, and should, be looked upon favourably. By reducing the number of small and less resilient schemes, the pensions landscape is altogether more stable. Over the past 30 years, we’ve seen the public perception of pensions rocked by numerous scandals, as well as accusations of miss-selling, fraud, and various other scams. Greater stability could be just what we need to restore the public’s faith. Otherwise, it’s only a matter of time before the pensions industry suffers a crisis of its own making.  

And bigger is perhaps better, so long as the market retains sufficient levels of competition. Consolidation naturally creates economies of scale and helps to reduce operating costs, which should in turn reduce member-borne costs and help enhance net investment returns. Certainly, as the SEI Master Trust has grown through acquisition—first with the Atlas Master Trust in 2021, and again this year as we welcomed the National Pensions Trust (NPT) into the fold—our proposition has gone from strength to strength. Accordingly, our members will reap the rewards.

There are also less tangible benefits. The Regulator’s new VFM framework sets a precedent, raising the bar to ensure pension arrangements are managed by full-time professionals with no other distractions. It’s hard to overstate the significance of this. The current working population—who are likely to live longer than any other generation—will be supported through retirement by the pension they invest in today. It’s only right that the people managing it be held to a high standard.    

It would be remiss to close without acknowledging one of the current challenges market consolidation presents. Before joining a master trust, we believe employers and their advisors need to ask the following: does the provider they’re considering have what it takes to stand the test of time? Will their master trust be around in ten, or even five years’ time, or will it have been acquired? If there’s a chance of the latter, then employers need to think carefully about the negative impact this will likely have on their employees’ experience.

Of the myriad reasons we believe the SEI Master Trust has what it takes in an increasingly competitive marketplace, we’ve boiled it down to just three. It gives me great pleasure to present this paper, which I believe speaks to our strengths as a provider and our commitment to members, both now, and in the years and decades to come.

^{1 ‘Defined contribution pension market consolidation continues, TPR’s latest figures show’, The Pensions Regulator 27 January 2022.}

^{2 See, for example, Pamela Kokoszka, ‘UK master trusts expected to be slashed to 10 amid market consolidation’, IPE, 21 July 2023.}

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