LCP urges those selecting a Master Trust to pay attention to investment returns and not to fixate on small charge differences when opting for a Master Trust

by | May 12, 2022

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LCP urges those selecting a Master Trust to pay attention to investment returns and not to fixate on small charge differences when opting for a Master Trust.

As Master Trusts continue to play an increasingly significant role in the pensions market, LCP is urging corporates and trustees  to pay attention to investment returns as their new report highlights there is over 600bps difference in returns between the top and bottom performing Master Trust providers.

LCP’s new report, Master Trusts Unpacked, highlights the wide variety of approaches that Master Trusts are taking to their default investment strategies due to differences in investment philosophy, membership base and client acquisition strategy. Some Master Trusts expect to grow pot size by taking more risk in the growth phase and de-risking over a relatively long consolidation phase.

Others have taken the opposite approach, employing relatively modest allocations to risk assets and de-risking over a shorter timeframe which is leading to a striking disparity in outcomes.


With equity markets performing strongly over the last five years, Master Trusts such as Aon, LifeSight and Aegon who have allocated c.100% to equities in the early years before retirement have benefitted the most. Aviva and L&G have seen lower returns over the same period due to their diversified approaches.

Other key findings from the report are:

•              Only 2/3 of Master Trusts are expected to deliver an ”moderate” PLSA retirement living standard for an average saver.


•              On issues around climate change, LCP modelling suggests 4 in 9 Master Trust strategies could see a 20% fall, or greater, in member expected outcomes in the event of a failed transition and global temperatures exceed 4C.

•              Master Trust providers target different retirement targets. Some are designed for drawdown (and stay invested in growth assets for longer) while others are designed for a more diverse range of member options leading to a lower risk approach at retirement. 

Nigel Dunn, author of the report and Partner at LCP, commented: “Sometimes the  selection of Master Trust provider is undertaken primarily on the basis of tiny differences in charges.  But our research shows that differences between Master Trusts in their investment strategy and resultant investment outcomes can be literally hundreds of times more important in determining the size of members’ pension pots. 


“Decisions about which Master Trust to use need to be multifaceted and take account of investment strategy, including in the run-up to retirement, as well as a range of other factors such as good governance and efficient administration, and not simply on which is the lowest cost provider.”

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