Adoption of master trusts is on course to accelerate amongst FTSE 250 companies over the next two years, according to a report from Willis Towers Watson (WTW).

The company’s annual FTSE 350 Defined Contribution (DC) Report found that 22 per cent of companies had already moved to a master trust as their main DC pension vehicle, with that number set to rise to 35 per cent of FTSE 250 companies and 27 per cent of FTSE 100 companies over the next two years.

Among FTSE 100 companies, use of master trusts has increased by 7 percentage points over the last two years, while use of DC trust-based schemes and contract-based schemes has fallen by 6 and 1 percentage points respectively.

WTW retirement business director, Gemma Burrows, said: “Little more than seven years since master trusts entered the mainstream DC pensions market, and just one year since the first master trusts started receiving authorisation from the regulator, they are already the retirement scheme of choice for nearly one-in-four FTSE 350 companies.

“As the Covid-19 crisis prompts employers to look more closely at efficiency savings, we are likely to see increased streamlining of trust-based processes as well as the continuing trend towards outsourcing of DC pension provision.”

Almost a fifth (18 per cent) of DC schemes were found to be planning to refocus their investment strategy in the next two years, with 16 per cent of having integrated environmental, social, and governance (ESG) factors into their default investment options, with a further 34 per cent of schemes expecting to do so in the coming year.

Burrows commented that the prevalence of ESG had been “buoyed by increased legislative focus”, adding that “rust-based DC schemes are slightly further ahead on ESG adoption, but master trusts and contract-based schemes are likely to catch-up in the coming year if intentions materialise into action”.

A third (33 per cent) of FTSE 100 schemes and 20 per cent of FTSE 250 schemes were found to be likely to enhance their at-retirement support, with 57 per cent of schemes already offering access to drawdown options, with 28 per cent offering this access “in plan”.

Burrows said: “The development towards better choice and more accessible options for members at retirement is to be welcomed, but still more than four-in-10 DC Schemes will not provide access to this facility in a cost effective and well governed way if their members want to enter into drawdown, rather than annuitise or take cash.”

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