Over the next five years, master trusts are expected to overtake own trust and contract-based arrangements as the most used defined contribution (DC) structures in the UK, according to Aon’s DC survey.

The survey, which drew insight from 214 UK DC schemes with combined assets of £60bn and more than one million members, found that 47% of schemes were considering a change to their DC structure.

The reasons given for a move were fairly evenly distributed, with a mixture of better outcomes for members (31%) and governance requirements (21%) being leading responses.

Respondents were asked what type of plan they use to provide their main DC benefits and what type of plan they expected to use in five years’ time.

Master trusts currently trail single employer’s own trust and contract-based arrangements in popularity among the survey respondents, but are expected to be the most common plan type in five years’ time.

Currently, 41% use their own trust, 32% use contract-based arrangements and 27% offer DC benefits through a master trust. In five years’ time, this is expected to shift to 26% for an own trust, 30% for contract-based arrangements and 45% for master trusts.

Aon said it could be seen as somewhat surprising that 26% of respondents expect to retain an own trust structure five years from now, but that some of these may be hybrid arrangements where DC and defined benefit (DB) are different sections of the same trust.

“Given the recent improvements in the funding position of many DB schemes, there has been considerable interest in exploring the possibility of using a DB surplus to fund employer contributions to a DC section under the same trust,” Aon said.

Two thirds of respondents said they had conducted a review of their DC plan structure and/or provider within the past three years.

‘Distinct lack of progress’

Other survey findings highlighted by Aon include that nearly two-thirds (65%) of those running pension schemes do not know how much a typical member can expect at retirement.

Steven Leigh, associate partner at Aon, said it was disappointing that so many survey respondents did not have a clear view of the expected outcomes for their members.

“At 65%, this level is similar to our research in 2022 and shows a distinct lack of progress in understanding this fundamental element of workplace pensions,” he said. 

 

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Pamela is IPE's UK correspondent. Before joining IPE in May 2023, she spent five years writing about the insurance industry. During her career so far she won awards for Most Promising Newcomer in 2020 and Best Investigative Article in 2022 from the British Insurance Brokers Association, and was also highly commended at the WTW Media Awards for Insurance Features Journalist of The Year.View full Profile

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