Defined Contribution  

DC market consolidates 39% in a decade

DC market consolidates 39% in a decade

The defined contribution market has shrunk by almost 40 per cent over the past 10 years, according to data published by the Pensions Regulator.

There were 27,700 DC schemes as of December 2021, compared with 45,150 in 2011 and 28,360 schemes in 2020. Of these schemes, 26,260 had fewer than 12 members.

The number of master trusts has also dropped from 38 to 36. Earlier this month, pensions provider Cushon announced that it had agreed to acquire the manager of the Creative Pension Trust, in a deal that will more than double its customer base and assets under management.

The deal represented Cushon’s third master trust acquisition in two years, providing a clear indication of the market’s direction of travel. 

Assets in master trusts, excluding hybrid schemes, have increased by almost a half since last year’s TPR report, rising from £52.7bn to £78.8bn.

Memberships have also risen by around 10 per cent, from 18.8m to 20.7m. The total amount transferred into DC schemes more than doubled from £3.7bn to £8.6bn.

“The vast majority of DC members continue to be saving into larger, more stable master trusts,” said David Fairs, TPR’s executive director of policy, analysis and advice.

“However, every saver deserves to be in a well-run scheme which offers good value for money. We know many small DC schemes are poorly run and we are determined to continue to work with industry to drive up standards of governance and trusteeship.

"We expect this trend of DC consolidation to continue as small schemes are now required to demonstrate that they provide value for members. Where they don’t, we expect them to either wind up or take immediate action to make improvements.”

This is an area the regulator has been paying special attention to, having published a discussion paper with the Financial Conduct Authority in September.

The document suggested ways of forcing DC schemes to disclose more data around investment performance, scheme oversight, and costs and charges, with the aim being to create an “holistic framework” for assessing value for money in the sector.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, noted an increase in asset levels has not translated into higher pension assets per member. Average asset levels have dropped by 70 per cent to £5,212 since 2012.

“Not everything is booming in the DC market. Average pension pots still need a boost,” she observed.  

“There might be many more people saving into a pension, but overall they are saving less — the vast majority of people won’t be saving more than the current auto-enrolment minimum of 8 per cent.”

Alex Janiaud is deputy editor at FTAdviser's sister title Pensions Expert