Master trusts are still in the early stages of their development but need to focus more on investment design and value for money, a study by the Defined Contribution Investment Forum (DCIF) has discovered.
The investigation into the investment strategies of the UK’s master trusts found that administration, communication and governance are a primary focus.
Master Trust Investment Designs: A Comprehensive Study questioned 17 organisations about their investment design strategies and the issues they face.
The survey concluded that more clarity is needed on what value for money means with the study describing this as ‘vague’. It also wants more support from regulators in this area, especially as 49% of people auto-enrolled in a company pension scheme are put into master trusts.
DCIF executive director Louise Farrand said value for money is an important issue. “We therefore hope that prospective investment returns, and the suitability of risks taken for each group of members, will feature more prominently in the future,” she added.
With master trusts becoming more established, the report calls for more of a focus on offering innovative and modern default investments to help achieve the best possible outcomes for members.
Farrand said an effective investment strategy is fundamental to the success of a pension scheme, resulting in better retirements for members.
“While it is very early days for both master trusts and the auto-enrolment process, we want investment to become a more competitive feature in the future and are very keen to be part of this process,” she added.
Other findings included the charge cap’s influence over investment strategies pushes master trusts towards cheaper assets and may not add as much value as actively managed schemes.
It also concluded that there is no single way to compare investment performance between master trusts, so the DCIF wants all master trusts to report quarterly on how much a typical 25, 35 and 55 year-old invested in a default scheme will receive in retirement.
Another concern is that there is more of a focus on costs than value. This limits asset diversification with infrastructure, private equity and hedge funds not featuring within the investment landscape. It also means more of a lean towards passive management.
Farrand said the DCIF wants to engage with master trusts, big and small, on an ongoing basis to help get their investment strategy right.
“As master trusts evolve and auto-enrolment matures we want to ensure that investment takes its rightful place, alongside contribution rates, at centre stage,” she added.
