Defined contribution (DC) master trusts have retained the growth that they experienced in early 2021 and maintained it since, Hymans Robertson has found.

The firm’s Master Trust Default Report revealed that growth fund performance had been “strong”, with providers returning at least 6 per cent.

Furthermore, double-digit returns were not uncommon in the growth phase, particularly for funds that were running high equity strategies.

Hymans Robertson described the bounce back from the lows that funds experienced at the start of the pandemic as “encouraging” for members.

However, the consultancy expressed concerns that, although retirement outcomes for master trusts remained steady, they could be affected by rising inflation, the continued increasing cost of living and lack of salary growth.

In the consolidation phase, master trust default funds have been “generally strong” but differences in strategy have resulted in returns ranging from 4 per cent to 10 per cent a year, with the majority of providers exceeding the normal volatility range of 6 per cent to 8 per cent a year.

Additionally, the report found differences in the pre-retirement phase were “clear”, with a wide variation in performance and risk across providers, with differences of up to 9 per cent a year between funds.

Hymans Robertson added that volatility had been higher than expected for those approaching retirement, and investment strategies should be aligned to member decisions at retirement.

It noted that member outcomes should be a key factor for master trusts in setting all aspects of DC strategy, while digital engagement can be “hugely powerful” in helping members understand what level of income they will need in retirement, whether they are on track to achieve that income, and how they could improve their chances of meeting an income target.

While the firm acknowledged the importance of investment performance in addressing those questions, it should be considered alongside other factors such as adequacy of contributions, retirement age expectations and how members want to access their savings in retirement.

Commenting on the analysis, Hymans Robertson head of DC provider relations, Shabna Islam, said: “As we reflect back on the last 18 months, it is a welcome relief to see that the market lows experienced in March 2020 are a bleak memory, with outcomes improving throughout this year and remaining steady as we look forward to 2022.

“Despite this positive performance, we continue to observe clear differences in investment strategy across providers, which could lead to different outcomes for members in otherwise similar circumstances. We remain concerned, and apprehensive, that the continued rise of inflation - significant increases to cost of living basics such as food and fuel - will ultimately impact member salary growth.

“With the trend of schemes switching to master trusts continuing to grow, there is an increased need for effective monitoring and a detailed comparison of providers to ensure long-term successful outcomes for members.

“As we look towards 2022 our belief remains unchanged – we expect risk to be rewarded for members with many years until retirement, and strongly support a more cautious risk approach for those where retirement is closer. Our research shows there are a range of approaches adopted by providers supporting different member outcomes and this is key for those at different stages of their journey.”

Share Story: