“Bigger is better”

Legislation and regulation in the DC market has focused strongly on consolidation in recent years. Through such recent measures as the more onerous value-for-money assessment requirements for smaller schemes1, DWP and TPR continue to focus on improving member outcomes by encouraging the consolidation of smaller, less efficient single-employer DC schemes into larger, more sustainable schemes with better governance, e.g. authorised master trusts.

An emerging secondary effect of DWP’s “bigger is better” mantra is the increasing consolidation seen among larger, authorised master trusts. Recent examples include the acquisitions of the Atlas Trust (c.£1.5bn in AUM), Creative Pension Trust (c.£0.4bn), and Workers Pension Trust (c.£0.3bn) by rival providers, SEI (Atlas) and Cushon (Creative and Workers Pension Trust). DWP’s willingness to call for evidence on consolidation of schemes with up to £5bn in assets in June 20212 highlights the legislative direction of travel, the natural conclusion of which would see a reduction not just in single-employer schemes, but also authorised master trusts.

Supported by the current regulatory environment, increasing scale through acquisitions can also be good business strategy for master trust providers, enabling them to leapfrog competitors, and deliver associated benefits including technological improvements and synergies for both members and, where applicable, shareholders. Provided sufficient capital backing remains available, this cycle of consolidation is likely to continue as smaller master trusts become increasingly uncompetitive compared to ever-growing peers.

How can master trust trustees ensure peace of mind if their scheme is subject to a bid?

For trustees of master trusts subject to such proposals, ensuring the best outcome for members is not always straightforward. Despite the legislative and regulatory push for scale, the broadly negative industry response to DWP’s call for evidence on consolidation of larger schemes highlights that scale alone is not necessarily a panacea for all schemes.

In addition to considerations of the impact on governance, administration and member experience, an assessment of the benefits of an acquisition should also take account of the financial implications on the Scheme Funder3 and its wider corporate group.

TPR’s authorisation regime provides some comfort to trustees by ensuring acquirers’ ongoing compliance with governance, administration, and financial sustainability requirements, including in relation to continuity strategies and financial reserves to mitigate triggering events. However, despite these protections, our experience is that trustees can benefit from undertaking their own review of the financial implications of a proposed acquisition. For example, trustees may wish to assess how financial sustainability may change post-transaction, even if TPR’s requirements continue to be satisfied, to determine the impact on member experience / outcomes in the future.

A review which addresses these considerations may cover the following questions:

  • What is the structure of the transaction and how will it be funded?
  • How will the transaction impact:
    • wider group support for the Scheme Funder?
    • the strategy of the Funder and its wider group?
    • the capacity of the Funder to invest in improving member outcomes?
    • the capital structure of the group supporting the Scheme Funder?
  • How does the forecast performance of the acquiring group compare to the status quo?
    • what are the key risks to these forecasts?
  • Will the acquirer retain sufficient liquidity and headroom in downside events?

This work, in conjunction with work undertaken by the directors of the Scheme Funder(s) and the Scheme Strategist4, can provide a robust and holistic basis for the trustees’ decision in consenting to a transaction.


1 Less than £100m in assets
2 Future of the defined contribution pension market: the case for greater consolidation, DWP, 21 June 2021
3 TPR’s Code of Practice no. 15, “Authorisation and supervision of master trusts”, defines Scheme Funder as a person who: (a) is liable to provide funds to enable the master trust to continue to run if it cannot meet its running costs from member charges, or (b) is entitled to receive profits from the scheme where member charges exceed running costs
4 Scheme strategist refers to a person who is responsible for making business decisions relating to the commercial activities of the scheme (Section 39(1) Pension Schemes Act 2017)


Jack Eaton, Analyst – 020 7337 4124 (jeaton@penfida.co.uk)