This at a time when the largest “own trust” DC scheme- the one run for Lloyds employees decided to move to the master trust it bought from Zurich (Scottish Widows).
Right now there are two matters for “own trust” to consider, the first strategic and the second operational. Strategically, do they have sufficient assets in the DC scheme to be competitive. The second, operational, can they operate default decumulation on their own by 2028.
My guess that not one “own trust” has positive answers to those questions right now and though they may pride themselves in offering better engagement, more bespoke investment strategies etc, this really doesn’t count for very much. The punters – staff -members – call us what you like – are really not very bothered whether their money is managed by a multi-employer schemes or own trust.
I can see why the advisers to the own trust arrangements want to continue own-trust’s increasingly impossible battle against scale and capacity to provide “DC pensions”. The DC seminars I go to are full of talks on engagement, empowerment and meeting the individual needs of each person at retirement. But the bigger issues are about scale.
Why scale matters – and own trust can’t get to it
Look at the research of Toby Nangle for LGPS. It shows the problems that small schemes have with investing in private market assets – 3-5% pa costs in investing in fund of funds. Then look at the kind of costs achieved by larger schemes investing in billions not millions.
If we are hoping to see something more than investment in passive pooled funds, then we cannot afford it till we can allocate in billions. Which is why most DC schemes are stuck with fund of funds to get into private markets.
The LGPS is £400bn, Nest is still only £50bn + but will be £100bn + by 2030. That puts it in poll position to get the best opportunities at home and abroad. Why would I, in a DC own trust default pot feel I could get some of that action?
Why size matters when providing decumulation (pensions to the ordinary person)
I don’t think that most DC schemes, even their advisers, understand what the Pension Schemes Bill is demanding of them by 2028. If you want a really good examination of this – look at what NatWest has produced and I copy onto my blog yesterday
The cost of getting in any of the solutions that NatWest discuss is large, both in time and in the legal , actuarial, investment and member support needed to make pensions out of pot. NatWest aren’t here for a laugh, they see a need for capital to back these pensions up and capital they have.
The number of companies running own trusts who are going to set up pot to pension services is going to be very small. I suspect only hybrid DB/DC schemes, keen to hang on to their DB surplus, are going to hang on to their DC scheme. Even they will be small in numbers.
All of which does not make the profession of DC consultancy a growing one. If I was Barnett Waddingham I’d be looking at the way the market is moving and repositioning the firm for 2030 and 2035. Consolidation is coming and while it will offer plenty of work up front, I suspect that DC pension consultancy is a dying profession for actuaries and the like – starting their careers!
The Pension Regulator’s numbers are rather more inclusive
The most important chart for DC schemes is this one
The second most important chart is the one that shows where people’s pots actually are.
The members are now congregated in a few mega pensions with more than 5,000 members. Own-trust schemes with less than 5000 members have not grown at all since 2011. For the Government, own-trust schemes are an irrelevance, a vanity for employers, trustees and advisers. That is today’s truth.
The own trust pot looks nice – but it’s broken
