Barnett Waddingham large DC scheme research reveals 'edge' of own-trust arrangements

The consultancy's annual analysis of large DC schemes – now in its fifth year – analysed 122 of the UK's largest DC schemes covering a combined £157bn in assets.

It revealed that, while the combined total of bundled and unbundled own-trust schemes (39%) still exceeded the number of large schemes within master trust sections (34%), the proportion of schemes with over £1bn now in master trusts had increased to 40% – matching the number of own-trust schemes at this scale for the first time.

Barnett Waddingham said the trend reflected an evolving market – with master trusts no longer seen just as a home for consolidating smaller or struggling schemes, but being increasingly used by large organisations managing substantial assets and tens of thousands of members.

It said this movement comes at a time where average charges for master trust default investment strategies have fallen to just 0.21% – the lowest of any scheme type and on par with average off-the-shelf default charges across the research.

Source: Barnett Waddingham Note (*): Average AUM based on schemes where TER was provided

But, while Barnett Waddingham said this brings cost efficiency, it noted the difference in engagement patterns showed that low charges alone don't always guarantee better value for members.

Specifically, the firm's data revealed large own-trust schemes have a notably higher proportion of assets invested in self-select funds (26%) compared to those in master trusts (16%) –something it said that suggested people within these schemes feel more confident, or better supported, to make the decision to move out of a default strategy.

Most notably, when looking at engagement across a sub-section of 33 large schemes, Barnett Waddingham said own-trust schemes continue to edge higher than their master trust counterparts – adding that, while around 47% of members across all schemes sought advice at the point of retirement, this rose to 48% in own-trust schemes, compared to 46% in master trusts.

It said own-trust schemes also saw stronger online engagement – reporting higher rates of portal and app usage as members logged in to check their pot sizes and interact with their savings.

Lastly, it noted that, even in practical areas like expression of wish forms, own-trust schemes led the way, with three of the four top-performing schemes in this area being own-trust arrangements.

Barnett Waddingham suggested it might be that these elevated engagement levels reflect the knowledge of membership within own-trust arrangements by trustees and sponsors – adding that, if this is the case, this underscores the importance for organisations transitioning to master trusts to establish an internal governance framework that maintains a link to the specific characteristics of each master trust section and supports the development of an effective engagement strategy.

Barnett Waddingham head of DC Mark Futcher said: "Master trusts have already helped to deliver real improvements for businesses, both in terms of price and operational efficiency – and they will continue to play an important role in the years to come.

"But as more employers weigh up whether to move into a master trust, it's crucial they don't mistake cost-cutting for value. Our research shows that many own-trust pension schemes – particularly those run by larger employers – are also continuing to deliver exceptional value, especially when it comes to member engagement, digital interaction and at-retirement decision making."

Futcher added: "The right solution will look different for every business and in a system moving rapidly toward scale, trustees and employers have a real responsibility to ask: what will drive better outcomes for our people? In this environment, choosing the right structure isn't just an operational decision – it's a meaningful commitment to the futures of millions of savers."