Pension schemes sponsors and trustees should pay attention to master trust investment returns when choosing which one to use, as there can be an over 600bps difference between the top and bottom performing providers, according to LCP.

The consultancy also urged trustees and sponsors not to fixate on small charge differences when opting for a master trust.

In its report, Master Trust Unpacked, LCP highlighted the ‘wide variety’ of approaches that master trusts are taking with their default investment strategies due to differences in investment philosophy, membership base and client acquisition.

The report detailed some of these strategies, such as expecting growth in pot size through taking more risk in the growth stage and de-risking over a relatively long consolidation phase, whilst others take the opposite approach.

According to LCP, as equality markets performed strongly over the past five years, master trusts such as Aon, Lifesight and Aegon, which have allocated nearly 100 per cent to equities in the early years before retirement, have benefited the most.

Meanwhile, providers with more diversified approached had seen lower returns over the same period due to their diversified approaches, the consultancy noted.

LCP also found that only two-thirds of master trusts were predicted to deliver a ‘moderate’ PLSA retirement living standard for an average saver and, on issues surrounding climate change, LCP modelling suggested four in nine master trust strategies could see a 20 per cent or greater fall in member expected outcomes if global temperatures exceeded 4 degrees.

The report noted that master trust providers were targeting different retirement targets, with some designed for drawdown and others for a more diverse range of member options leading to a lower risk approach at retirement.

LCP partner and author of the report, Nigel Dunn, 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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