Launching the Annual Master Trust Default Report, Michael Ambery, Head of Provider Relations at Hymans Robertson explains how the market is evolving and explains the investment trends for the last 12 months:

“In 2019 money has continued to pour in to the Master Trusts and it would be fair to say that it has been a remarkable year for the vehicle. With the completion of Regulator’s provider authorisation process, the introduction of responsible investment requirements and tightening legislation around the Statement of Investment Principle there have been some significant milestones. Accurate performance monitoring and fair comparison has become even more essential and our third annual analysis of default fund performance shows the key trends.

“The analysis reveals that many providers have not materially changed their investment risk profile from previous years, and that there are still following three clear phases of DC investment; ‘Growth’ when taking on risk in exchange for higher returns is preferable, ‘Consolidation’ when a more cautious approach is adopted, and ‘Pre-retirement’ when any risk should be significantly dialled down.

“It also shows that although members have continued to enjoy positive returns in each of these phases, there are some early signs of concern emerging. For example, some providers are potentially limiting returns by being too over-cautious in the early stages of a DC savings journey when volatility should be accepted. While, on the other hand, some are taking unnecessary levels of risk at the point of pre-retirement, when any unexpected downturns could significantly impact returns.

“Alongside all of this, for any investment strategy to work, it is essential that DC members remain informed and up-to-date around their chosen retirement age, what this choice means in practice and, should they wish to, how to change it. By ensuring, to as great an extent as possible, that their membership’s retirement ages are accurate then Master Trusts can start to invest more effectively. Ensuring its default approach is not only delivering an adequate income for their members but that it is optimised both to, and through, retirement.”