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Consolidation to shrink eye-watering number of pension schemes

Nathan Long
retirement

The Pension Regulator has released data on Trust based defined contribution pension schemes – a type of pension that accounts for 41 percent of active pension members. The release shines a light on some key themes. From Nathan Long – Senior Pension Analyst at Hargreaves Lansdown.

There are a staggering 26,240 open Trust based defined contribution schemes, looking after 41 percent of active pension members, compared to 2,400 contract based schemes serving 39 percent of active pension members. Whilst the number of schemes has fallen by 3 percent, there is clearly need for much further consolidation. 93 percent of Master Trust members are served by schemes on the assured list who therefore meet certain quality standards, however this accounts for only half of master trust assets.

Assets are up 93 percent since 2010, membership is up 42 percent in a year and 300 percent since 2009. However, average values per member are declining, now just £4,700, driven by a huge number of people who are saving in a pension for the first time. A huge 92 percent of members are invested in the scheme’s default strategy. Membership is on the up as average pension pot values slide within Trust based pension schemes – yet more evidence of the auto-enrolment impact on saving for later life. There remains an eye-watering number of schemes out there. Whilst many are very well managed, there are huge doubts around the quality of some smaller schemes. We expect to see the number of these schemes reduce sharply in the coming years.

We know the Government is concerned to see fewer, better run schemes in the future. The small number of members choosing their own investments hints at low levels of engagement. Even small improvements in investment returns can have a monumental impact on the size of your pension pot in later life. A one-size-fits-all default fund cannot be right for everyone, the industry must not give up on helping members choose more appropriate investments.