Master trusts and the half-built bridge

Not all master trusts are the same

“Master trusts give value for money” -it’s a statement that is made time and again. Yet, when you look at how master trusts are invested, you see massive disparities between them.

At yesterday’s Pension PlayPen coffee morning, Chris Nicholls talked us through the range of approaches adopted by the 14 leading master trusts, showing that someone reaching the end of their investment journey (aka lifecycle) can be invested in radically different ways.

Hymans Robertson have created a consensus asset allocation which we use to measure the outcomes of saving as people reach the end of lifestyle  and close in on the “target date”- the point at which they are expected to stop saving and start spending. It looks like this

We use the Morningstar index to understand how workplace pensions were allocated prior to 1997 and Hymans generously share their analysis of consensus positions for accumulation (younger) and pre-retirement (older). Hymans average is the average asset allocation over the life of a scheme.

Especially close to retirement

Actually, there is considerably more consensus about the accumulation than the pre and post retirement phases of Master Trust asset allocation.

Is this important? Well if you were to look at any one of those 14 strategies, you could probably justify it in terms of what risks you thought you were managing on behalf of the 95% of Master Trust members which use their default fund.

But while we can find a consensus asset allocation in “Hymans MT older index”,  the outcomes from the differing strategies will be very different – especially in 2022 when cash produced a positive return, equities faltered and bonds bombed.

What risks are being managed?

Pre-retirement strategies that had no cash in them (4 and 5), assumed members were not managing their pots with an eye to taking tax-free cash. This is odd, we know that most people bank their cash as their one certainty. These strategies were running high bond allocations and consequently created most pain for savers in 2022.

Pre retirement strategies that had less than a third of money invested in growth assets (equities) – 6-14, were assuming that people would run defensive drawdown strategies or possibly annuitise – while stripping out cash. These would have taken middling positions in any league table. Effectively hedging bets.

The winners in 2022 were the strategies with hgh equity and cash allocations and low allocations to bonds, these strategies were focusing on longer term investments and/or a high level of conviction that 2022 was gong to be bad news for investors.

I can guess the funds behind the strategies (but I won’t). Thanks to Chris Nicholls and Newton for demonstrating why the outcomes for savers in their sixties are all over the place. Thanks for telling us why some outcomes are so much worse/better than others.

Thanks to Hymans for giving us a benchmark.

What to do?

All of these pre-retirement strategies remind me of bridges that get half built – waiting for the other half of the bridge to get built from the other side

The perfect construction would lead to disaster if driven across.  We are actually asking people to park their cars on the bridge awaiting completion. Completion will happen when we give people a way to get to the other side – a post retirement pathway/default.

Which is what we now have to do! Except you might say why stack up the traffic, why isn’t the other side of the bridge already ready?

Chris Nicholl’s analysis started with figures from the FCA’s Retirement income study which showed what people actually do when they get to the middle of the bridge and find their is no way across. What they do is start drawing down their pot – those with small pots (less than £30k) cash out (orange box), those with bigger pots also cash out but are also taking high drawdowns of 8% + and it isn’t until you look at pots of £100k + that you see people taking a spread of income  at below 8%+.

The conclusion is obvious, left to their own devices, people take money out of their pots to meet their current needs and they are not making much effort to sustain the income for a lifetime until they have sufficient in the pot to take the pot seriously.

What this tells me is that master trusts are currently working on a process of natural selectin. They are allowing pots to eat themselves when small and expecting large pots to be drawn down more sustainably. This is ok – but it is not a pension strategy, it is a “claims strategy”. It’s what you get when you don’t complete the bridge

Put another way, the bridge is only half built because only the wealthy have suffecient wealth for pensions to be much of an issue, the poorest quintile of savers are almost entirely reliant on the state pension and benefits.

As we know that the top-quintile have access to advice or are sophisticated enough to find their own bridge, then the master trusts see little commercial advantage in providing much more than a claims facility for the rest. Which is a bit unfair as there are three quintiles not represented on this chart, representing people for whom ther is enough in the pot to make a wage for life retirement strategy attractive, if only someone built the other half of the bridge.

Like the bridge I will stop half way through

Chris’ excellent analysis, which can be followed by clicking below, goes on to talk about ways that the rest of the bridge could be built.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Master trusts and the half-built bridge

  1. Adrian Boulding says:

    When you ask members what they want in retirement, they don’t answer “UK Equities” or “Fixed Interest Securities”, they answer “a monthly income throughout my retirement”. Many are surprised at retirement that their workplace “pension” doesn’t actually give them a pension. We need to get on with delivering initiatives like CDC that actually give members the simple thing they are asking for.

  2. henry tapper says:


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