The number of FTSE 250 companies moving to a master trust is set to increase over the next two years, according to research by Willis Towers Watson (WTW).
The consultancy found 22% of companies have already adopted master trusts as their main defined contribution (DC) pension vehicle, with that number set to increase to 35% over the next two years among FTSE 250 companies, and to 27% among the FTSE 100.
WTW's annual FTSE 350 DC Pension Report also revealed the increased use of master trusts has been at the expense of trust-based DC schemes. It found among the FTSE 100, while there has been a 7% increase in the number of companies using master trusts, the use of DC trust-based schemes had fallen by 6%, and contract-based schemes by 1%.
The research also found nearly a fifth (18%) of DC schemes are planning to change their default investment strategy in the next two years, while a further 34% of schemes are expecting to integrate ESG into their default investment options in the coming year.
WTW retirement business director Gemma Burrows said: "Little more than seven years since master trusts entered the mainstream DC pensions market, and just one year since the first master trusts started receiving authorisation from the regulator, they are already the retirement scheme of choice for nearly one-in-four FTSE 350 companies.
"As the Covid-19 crisis prompts employers to look more closely at efficiency savings, we are likely to see increased streamlining of trust-based processes as well as the continuing trend towards outsourcing of DC pension provision."
She added: "ESG adoption is continuing to accelerate towards the mainstream, which is buoyed by increased legislative focus and looks set to be adopted by more DC schemes in the coming year. Trust-based DC schemes are slightly further ahead on ESG adoption, but master trusts and contract-based schemes are likely to catch-up in the coming year if intentions materialise into action."
The survey also found that a third (33%) of FTSE 100 and a fifth (20%) of FTSE 250 schemes are very likely or extremely likely to enhance their at-retirement support.
Burrows said: "The Financial Conduct Authority's review of retirement outcomes highlighted the challenges members face in choosing their own benefits. Contract based providers are now required to provide far more support, but we see many companies looking to supplement this further with apps and online web tools.
"We are seeing an increase in DC schemes offering drawdown access through master trusts, either as the existing pension provider or through a third-party partnership. The development towards better choice and more accessible options for members at retirement is to be welcomed, but still more than four-in-ten DC schemes will not provide access to this facility in a cost effective and well governed way if their member want to enter into drawdown, rather than annuitise or take cash."
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