How Master Trusts are Transforming for Better Member and Commercial Outcomes

How Master Trusts are Transforming for Better Member and Commercial Outcomes

How Master Trusts are Transforming for Better Member and Commercial Outcomes

December 2022

A Master Trust (MT) is a multi-employer defined contribution pension scheme, set up under a trust and managed by a trustee board. MTs were introduced in the UK pension market about a decade ago as a cost-effective way for mainly small-sized pension schemes to outsource a majority of pension activities, while retaining a narrow set of governance decisions at scheme level (e.g., benefit and contribution levels).

The UK government’s introduction of auto-enrollment in 2012, which mandates all employers must offer a pension, combined with macro trends such as the growth of self-employed and start-ups, has dramatically boosted MT assets under management (AUM) in the past few years. In addition, the turbulence in the UK pension market in October 2022 – following the publication of the government’s mini budget and driven by liquidity challenges associated with liability-driven investment strategies – may potentially act as a further accelerant as corporate plan sponsors seek to transition pension responsibilities to third parties.

Figure 1: Defined Contribution Asset Growth by Structure (2017-2027, £Billion)

Figure 1: Figure 1: Defined Contribution Asset Growth by Structure (2017-2027, £Billion)

Source: “The Changing Landscape of Pensions and Master Trusts”, Pensions Management Institute, July 17, 2020 

At the same time, the UK pensions regulator has sharpened authorization requirements, thus increasing cost and risk for MTs. This dynamic landscape means that the MT market will likely face significant change in the coming years, fuelled by a desire to seize commercial opportunities, reduce costs and improve member outcomes.


Today, there are 36 MT schemes of different shapes and sizes – two-thirds are set up by commercial providers, with the remainder being not-for-profit providers. Providers include investment managers (e.g., Aviva, Legal &General (L&G)), consultants (e.g., Mercer) and specialist MT providers (e.g., The National Employment Savings Trust (NEST), The People’s Pension (TPP), Now:Pensions). The MT market is currently dominated by two non-profit providers with the largest of those, NEST, now receiving monthly subscriptions in excess of £500 million.


Future consolidation in the MT market seems inevitable given the arguably sub-scale nature of many existing providers. Evolving member expectations, including sophisticated (responsible) investment choices and stronger (digital) member engagement, will add further pressure to reach a minimum viable scale.


In addition, the fast-growing asset pool and the commercial opportunity this presents could attract significant additional investment from commercial providers – the future MT landscape may well have a stronger for-profit focus.

Figure 2: Number of MTs and MT AUM

Figure 2: Number of MTs and MT AUM

Source: BNY Mellon

The possible evolution of MTs can be viewed through three lenses: (i) pension members, (ii) MT sponsors and (iii) service providers for MTs.


Pension Members


Pension members have a largely hands-off approach to their individual plans today, beyond choosing a yearly contribution level (subject to a minimum of 5% of their salary). Our expectation is that pension members will aim to exert significantly more influence on their individual outcomes in future, which may manifest itself in the following ways:

  • A more dynamic investment profile, which means a greater challenge to a MT default investment option. Default options are the typical choice for over 90% of pension members today.
  • A greater focus on responsible investments and associated ESG reporting.
  • A greater demand for instant portfolio reporting with look-through capabilities.
  • A more intuitive and fun user experience, enabled by digital tools and technology – this will not be limited to younger generations only.
  • An increasing emphasis on the ease of transportability of pension pots between MT providers (e.g., following a job change). A similar trend can be observed in the EU through the new Pan-European Personal Pension (PEPP) regulation.

MT Sponsors/Providers


The structure of the MT market, and how MTs are organized within it, is likely to change in the next five years. We expect the following trends:

  • Market consolidation: The number of MTs will drastically reduce, particularly amongst the commercial providers as they compete for scale. Schemes below £10 billion in size will largely disappear, either through consolidation or market exits.
  • Expansion into new markets: MT providers may try and enter new markets such as the single company Defined Contribution (DC) space, recognizing that the market requirements are similar. This will enable MTs to build on their original business objectives and grow AUM and profitability, as well as improve member outcomes.
  • New investment offerings: MTs will introduce new investment choices that are better suited to a more dynamic investment offering in accumulation and in-pension phases. This includes a greater focus on responsible investments and private markets – in line with the pension industry more generally – as well as a greater focus on in-house investment management as MTs build scale.
  • Individual engagement: The fast-growing number of plans and individual members will require scalable member administration and engagement models, which can act as a true differentiator – as a relevant case study, large pension funds in the Netherlands with millions of members are currently exploring collaborations with specialist providers in preparation for the new DC pension law.

Service Providers


As the MT market evolves, we foresee the role of custodians to become more prominent across the MT value chain as central orchestrators. Custodians can assist with:

  • Asset safety: Pension member protection is of paramount importance and must evolve in tandem with MT market growth. In this context, it is likely we will see the rise of depositary functions to provide a second line of defence, even if this is not mandated by regulation.
  • Transparency: On-demand look-through reporting that is accessible to both MT (front office) and members to help make better informed decisions. Custodians can bring the data and processing power to make this a reality.
  • Technology and innovation: Custodians can assist MTs to stay at the forefront of industry developments and act as the connective tissue between MTs and third-party providers, for example in the context of ESG data or tools for individual member engagement.
Leveraging our technology and open architecture platform, Master Trusts can benefit from enriched reporting, enhanced investment insight and asset safety to prepare for the next generation of pension members.


The Road Ahead


The UK MT market is likely to see significant change in the next few years. Ongoing consolidation will probably result in fewer though larger schemes. To achieve the requisite member outcomes, MTs will need to make changes across the value chain, from providing a more diverse investment mix to enhanced asset safety and transparency. Custodians are well-placed to support both MT trustees and pension members in this journey.

Learn more by visiting BNY Mellon Asset Owner Academy, a platform to share bold ideas, insights and learnings to help asset owners stay agile as they transform their operating models.

Anders Reinertsen

Head of Asset Owners, Americas

Carin Looi

Head of Asset Owners, Asia Pacific

Clive Robinson

Head of Asset Owners, Middle East

Xavier van den Brande

Head of Asset Owners, Europe

Marvin Vervaart

Client Solutions Manager, Asset Owners

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