DC growth indicates automatic enrolment is starting to mature

Some things are foreseeable. As automatic enrolment has created hundreds of thousands of new pension memberships, so the defined contribution (DC) market was inevitably going to grow.

In that respect, our most recent DC trust report holds no surprises. The DC market is increasing in size year-on-year – with a 33% increase in scheme memberships in 2018, compared to 2017.

It’s the same story for total assets in DC schemes (with 12 or more members), which also continue to grow, up from £48 billion in 2017 to £60 billion in total. In fact, they have increased by 172% since 2010 (from £22 billion to £60 billion). 90% of people actively contributing to a pension are saving into a DC scheme.

But some of the stats are more revealing. There are indications that automatic enrolment is maturing.

The success of automatic enrolment means saving into a workplace pension is now the norm with nearly 10 million people newly saving for their retirement. But the influx of new memberships is starting to slow.

The number of deferred memberships has increased by more in the past year (45%) than active memberships (24%). The number of deferred memberships will continue to grow as people change jobs and join a new scheme. This is likely to be the focus of further debate in the months to come.

Eventually we expect to see the number of active memberships start to plateau because the number of workers eligible for automatic enrolment in the market is likely to remain stable.

Next we expect to see the average size of pension pots start to increase as the effects of a large number of people saving for the first time reduces. We have already seen a rise in average assets at retirement.

Elsewhere, our report shows master trust schemes are continuing to grow in size – overall,  memberships now exceed 13.4 million, up from nearly 10 million last year, while assets in master trusts have increased by £13 billion since last year, from £16 billion to £29 billion.

The number of DC schemes with 12 or more members has declined again, from 2,180 at the end of 2017 to 2,010 at the end of last year. Transfers into DC schemes, from both DC and DB schemes, increased almost 150% to nearly £5 billion, compared to £2 billion the previous year, and £660 million in 2016. Most of this is driven by consolidation of schemes into master trusts which are currently going through authorisation to put tougher safeguards around this growing market and better protect members.

Overall it is a picture of a growing market, driven by automatic enrolment and a new culture of saving into a workplace pension. Regardless of the trends, our role to make sure savers’ money is protected and pension schemes are offering value for money for their members remains vital.

These figures are yet another reminder about what is at stake if schemes are not run well – people’s livelihoods which could be at risk. We continue to encourage trustees, particularly those running smaller schemes which are struggling to meet the standards of governance which we expect, to seriously consider if they are doing the best for their members. Winding up and moving members into a better run scheme, such as an authorised master trust, may in some cases be the better option.

By David Fairs
Executive Director of Regulatory Policy, Analysis and Advice