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Share on LinkedInNew research published today by WPI Economics, commissioned by Phoenix Group and People’s Partnership, finds that Defined Contribution (DC) megafunds have the potential to be a game changer for pension savers and the UK economy – but only if policy makers and regulators can get the broader ecosystem right.
New modelling released today projects that – if a £25 billion AUM minimum fund size is introduced – by 2030 the trust-based DC market could consolidate from 30 master trusts to between four and 10 master trusts, with the contract-based DC market having six Group Personal Pensions (GPP) providers. This is in the context of the UK Government’s ambitious vision for the future of DC pensions, which includes consolidation of the market into a series of megafunds of this size.
Depending on the growth rate in the trust-based and contract-based markets, it estimates that there could be between £821 billion and £976 billion AUM in the DC market in 2030.
There are a set of critical enablers needed to realise the benefits of megafunds and ensure that they deliver higher returns and an increase in private market investment. These include bulk transfers without consent, implementation of the Value for Money agenda, and market management to support a shift from cost to value.
If the market undergoes these fundamental shifts, savers currently in the smallest funds could benefit from 12-24 basis points (bps) in higher net returns (annually). For someone on average salary, this could mean an extra £12,000 in their pension pot at retirement. Those currently in larger funds can expect a smaller increase in returns.