From consolidation to megafunds: The £1trn evolution

The UK master trust market has undergone a staggering transformation. In 2012, the sector held a modest £2bn in assets for roughly 300,000 members. Fuelled by auto-enrolment and a preference for trust-based governance, those figures have surged to nearly £300bn and 28 million members as of late 2025.

However, this is only the beginning. Central estimates suggest master trust assets will reach £800bn by 2036. If the market sees further bulk transfers from contract-based providers and the widespread adoption of default retirement solutions, that figure could realistically hit £1trn.

As Aviva Master Trust's Chris Noon notes: "At these scales... Master trusts are likely to be under significantly increased scrutiny from The Pensions Regulator, from members and from wider market interest groups."

The opportunities of massive scale

When a master trust exceeds £50bn in assets – a size larger than many average UK asset managers – the value-add potential for members changes fundamentally.

1. Sophisticated investment and diversification: Scale allows trustees to move beyond simple liquid assets. By introducing private markets and additional asset classes, trustees can increase long-term returns while reducing underlying fund charges. But, as Noon warns, this requires a shift in mindset. He says: "It requires trustees to actively govern the investment proposition – going much beyond a ‘good enough' mindset – and to actively manage the new risks... particularly the risks that arise from increased investment in private markets."
2. Hyper-personalisation and AI: With more capital to reinvest, trustees can push for propositional excellence. This includes AI-enabled support, hyper-personalised content, and sophisticated retirement journeys designed to prevent members from making poor at-retirement decisions.

Navigating funder friction and market risks

While the potential for member value is immense, it is not guaranteed. Trustees face three primary challenges in this new era:

1. The funder relationship: Funders often invest when there is a business threat. Because the secondary market for moving employer assets is limited, trustees must be proactive. Noon argues that trustees will have to manage funders "both collaboratively and proactively" to ensure investment stays appropriate to the fund's scale.
2. The rise of the "slick" competitor: As average member pots reach £30,000–£40,000, interest in those assets will grow. Trustees must compete with "shiny new market entrants" and innovative solutions like collective defined contribution (CDC) schemes.
3. The AI double-edged sword: While AI aids engagement, it also empowers scammers and introduces risks to member decision-making. Trustees must evolve their risk frameworks to handle bias, cyber-attacks, and AI-driven fraud.

Hard questions for the master trust boardroom

The transition to megafunds will also pose difficult questions for master trust boards:

• Investment expertise: Do we have the capabilities to manage both increased scale and new asset classes? Are we governing private markets effectively – are we paying high fees for performance that is just good enough?
• Funder tension: Are funders investing in line with master trust asset growth, or is lack of a secondary market for employers making them complacent?
• Retirement readiness: As member pots reach the £30,000–£40,000 average, is our decumulation solution robust enough to prevent members from transferring to poorer value providers, including expected new entrants?
• AI resilience: Beyond the hype, have we audited our risk framework for AI-driven bias and the sophisticated scammers targeting our growing asset pool?
• Stewardship versus administration: Are we acting as "demanding stewards" who challenge our providers, or are we simply "passive administrators" checking boxes? 

Lessons from LGPS pooling

The Local Government Pension Scheme (LGPS) transition to pooling and global large schemes offers three critical lessons for master trusts as they scale to £50bn-plus in size.

1. The shift to in-house capability: With scale comes the value of having increasingly internally built investment management teams, reducing reliance on expensive external consultants.
   For master trusts, scale will allow trustees to move beyond off-the-shelf products. By 2036, the top master trusts may emulate LGPS and megafunds in other countries by running their own funds in-house and using internal analysts to manage productive finance directly.
2. Accessing productive finance and private markets: The LGPS and other large funds globally have successfully used scale to invest in UK infrastructure and private equity, asset classes that were previously too complex or expensive for individual funds.
   For master trusts, megafund scale reduces risk through diversification into private markets, which can improve long-term returns. However, trustees must learn from LGPS the importance of managing liquidity risk and valuation lag inherent in these illiquid assets.
3. Professionalized governance models: LGPS pools have moved from local autonomy to centralized, expert oversight, often operating as Financial Conduct Authority (FCA) authorised entities. We see this in large schemes too, the need to explain true independence from in-house teams to offer the same level of governance as you would apply to an outside provider, as there is significant value in using in house services but we do not need to compromise governance.
   As master trusts grow, independence becomes the key metric. Trustees must evolve their governance to be as rigorous as an asset manager's board, focusing on strategic asset allocation rather than just monitoring administrator performance.

Active stewardship becomes mandatory

The era of the passive trustee is over. As master trusts become central to the retirement security of millions, the weight of responsibility has never been higher.

As Noon concludes: "The member value generated from master trusts reaching £1trn in scale is not automatic, it depends on trustees asking hard questions about investment propositions, decumulation readiness, member engagement and funder accountability."

For the modern trustee, the goal is clear – transition from an administrative overseer to an active, demanding steward of member interests.

Alison Hatcher is chief client officer at Vidett