Leading auto-enrol pension scheme ‘one of worst performers’

Returns for pension savers in Now:Pensions, one of the UK’s largest workplace pension schemes, were five times lower than the market’s top performer over three years, according to new analysis that reveals a big gap in the outcomes of different funds.

Investment performance is one of the biggest factors determining the size of a final retirement fund after contributions have been taken into account.

But a wide-ranging survey of so-called “ master trust” pension schemes, which have surged in popularity in recent years, found significant differences in the performance of funds driving returns for savers.

Master trusts are pension schemes which allow different employers to pool their schemes in one fund, on the promise of greater cost and governance benefits compared with “single-employer” schemes.

Membership of these schemes has ballooned from 270,000 in 2012 to about 10m today, largely as employers took on a new duty to enrol eligible staff into a retirement fund.

But in spite of their hefty market presence, master trusts have not been subjected to the same regulatory oversight or scrutiny over their charges and performance as single-employer pensions.

Corporate Adviser, a publication for advisers, contacted 50 master trust providers in the UK and asked them about their investment performance, asset allocation and scheme membership details.

The results showed there was a gulf between the best and worst-performing so-called “default funds” run by master trusts, where most members are invested.

“There is a 30 per cent difference between the best and worst-performing master trust defaults over three years,” said the report, which examined responses from 20 master trust providers, covering 90 per cent of the market.

Now:Pensions, which has about 1.6m members and £630m of assets under management, had the lowest three-year returns of any non-faith-based provider in the study.

Its three-year returns of 7 per cent compared with 37 per cent for savers in the much smaller SuperTrust UK, which has 2,000 members, and a 23 per cent performance benchmark set by Corporate Adviser.

“[Now:Pension’s] performance has been disappointing,” said the survey. “Most master trust defaults have delivered returns around the [Corporate Adviser] index level but with different levels of risk.”

Now:Pensions said that, like other managers, it had experienced a difficult 2015 as global markets struggled.

“While our returns for 2016 and 2017 were each comfortably over 10 per cent net of charges, our deliberate lack of exposure to currency exchange rates meant that we did not benefit from the sudden collapse in the value of sterling in 2016 which provided an unexpected fillip for the majority of our peers,” said Rob Booth, director of investment and product development at Now:Pensions.

“We remain confident that our all-weather approach to investing will deliver very strong risk-adjusted returns for our members over the medium to long term.”

The Corporate Adviser survey found it was “very difficult” to compare providers in terms of value for money due to the wide range of fee structures levied by master trust providers.

Some providers, such as Nest, the UK’s biggest master trust with 3m active members, had a hybrid fee structure where there was a 1.8 per cent charge on contributions and a 0.3 per cent annual management charge.

Some schemes offered bespoke charges to individual employers while others had variable annual management charges for members, depending on how much the employer wished to pay in charges.

“Providers’ disparate member-charging approaches make comparing outcomes net of charges challenging,” said the survey. “Individuals starting saving at older ages will pay more than those starting at younger ages where a contribution charge is in place.

“Conversely schemes operating an administrative charge may completely wipe out small pots left by individuals who only contribute into a scheme for a short period of time. People with large pots, meanwhile, subsidise those with small pots under a flat-rate annual management charge model. All approaches impact some groups adversely.”

Corporate Adviser contacted nearly 50 master trusts for the survey and received responses from 20, which covered 90 per cent of the market by assets and membership.

However, nine schemes were “unwilling or unable” to provide data, said the survey. One was not-for-profit scheme The Cheviot Trust, whose board chairman, Sir Derek Morris, is a former chief of the UK Competition Commission.

The Cheviot Trust had not responded to a request for comment by the time of publication.

“While there is no legal obligation on master trusts to provide media and consultancy organisations with performance data, the decision to refuse to give the most basic performance figures appears to us at odds with the pension industry’s drive towards greater transparency,” the survey said.

Date published: 04 July 2018

Josephine Cumbo, Pensions Correspondent


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