‘TPR research shows ‘scale is not a panacea’ for good outcomes in DC’ - LCP

The Pensions Regulator (TPR) has today published a review of the evidence on the link between scale and performance in Defined Contribution pension schemes.

The review draws on evidence from the UK and overseas on the extent to which the current drive to scale and consolidation will improve member outcomes. It includes analysis of costs and fees (where larger schemes typically perform much better), but also investment returns, where the pattern is much more mixed and where the average single employer trust outperforms the average Master Trust.

Commenting on the research, LCP partner and investment expert Sam Cobley said:

"The Pensions Regulator’s analysis highlights several potential advantages to members of larger pension schemes, including lower per-member costs. Larger schemes may also be able to bring investment management in-house, particularly in areas such as private markets, lowering the cost of such asset classes, which are likely to be increasingly important as schemes grow and diversify.

However, the evidence is not all one way. TPR notes that single-employer trusts, when supported by appropriate investment advice, tend to have higher average investment returns than the average master trust. More broadly, DWP research found no clear correlation between scheme size and performance for either master trusts or group personal pensions.

 Overall, the analysis shows that whilst there could indeed be benefits to members of moving from smaller schemes to a large Master Trust, there are also plenty of members who are getting a great outcome by being part of a well-run single employer trust, especially where the employer is meeting the costs of running the scheme. It is clear that there is not a one-size-fits-all right answer to what is best in any workplace or for any group of workers, and that scale is not a panacea for good outcomes in DC."