Master Trust Pensions: What They Are and How They Work

Master trusts are the backbone of UK workplace pension provision. Since auto-enrolment became mandatory for employers of all sizes, the master trust has become the standard vehicle through which most UK employees save for retirement. Yet the term itself is often unfamiliar to members, many of whom know only the name of the scheme they have been enrolled into, not what type of structure it is.

This guide explains the mechanics of master trusts — how they differ from other pension arrangements, how they are governed, what regulation protects members, and what the implications are for those who leave a job, move abroad, or wish to consolidate their pension savings.

What Is a Master Trust?

A master trust is a trust-based defined contribution occupational pension scheme that accepts contributions from multiple, unrelated employers. The defining feature is the shared structure: instead of each employer creating its own pension scheme with its own trustees, governance, and legal framework, many employers join a single pre-existing scheme run by a specialist provider.

The largest master trusts in the UK include:

• NEST (National Employment Savings Trust) — a public-interest corporation established by the government to ensure every employer could meet auto-enrolment obligations; the largest by membership
• The People's Pension — run by B&CE, originally established for the construction industry but now open to all sectors
• NOW: Pensions — owned by a Danish pension provider; competitive low-cost structure
• Smart Pension — a technology-forward master trust
• Legal & General Mastertrust — part of the L&G group, popular with mid-to-large employers
• Aegon Master Trust, Aviva Master Trust, Fidelity Master Trust — provider-run schemes from major insurers

Each employer joining the scheme signs a participation agreement rather than setting up its own trust deed. The employer's obligations are primarily payroll-related — calculating contributions, deducting employee contributions, and passing them to the scheme. Everything else — investment, administration, governance, and compliance — is the master trust's responsibility.

How Master Trusts Differ from Traditional Occupational Pensions

A traditional occupational pension scheme is established by a single employer for its own employees. The employer (or a group of related employers) is the sponsoring employer, and the trustees are responsible exclusively to members of that employer's scheme.

In contrast, a master trust has no single sponsoring employer in the traditional sense. The trustee body is responsible to the members of all participating employers. This creates a different governance dynamic:

Governance: Master trust trustees are professional, independent trustees. They are not appointed by a single employer and owe no duties to any particular employer — only to the collective membership. This can actually produce stronger governance than a small company scheme where trustee knowledge and independence may be limited.

Cost: The shared infrastructure of a master trust produces economies of scale that reduce costs per member. NEST, for example, charges a 0.3% annual management charge plus a contribution charge — lower than many traditional workplace schemes, particularly for smaller employers.

Flexibility for employers: Because the master trust manages all the operational complexity, even a small employer with one or two employees can offer a high-quality pension without becoming a pension scheme administrator.

Employee continuity: In some master trusts, membership continues through multiple employers if both employers use the same scheme. An employee moving from one People's Pension employer to another People's Pension employer may remain in the same scheme throughout, accumulating into a single pot. This is not universal — it depends on whether both employers use the same scheme.

The Regulatory Framework

The regulatory landscape for master trusts changed fundamentally with the Pension Schemes Act 2017, which came into force in 2019. Before that Act, master trusts were largely regulated under the same framework as all other occupational schemes — but the framework was inadequate for the scale and systemic importance that master trusts had acquired.

The 2017 Act requires master trusts to be authorised by the Pensions Regulator. To obtain and retain authorisation, a master trust must demonstrate:

1. Financial sustainability — the operator must hold sufficient capital to run the scheme and, crucially, to wind it up in an orderly manner if the business fails. Members must not be left exposed to scheme closure without funds to pay for administration and transition.

2. Systems and processes — adequate operational infrastructure to run a pension scheme correctly.

3. Fit and proper persons — the key decision-makers running the master trust must pass a fit and proper test, similar to those applied in financial services regulation.

4. Sound governance — the trustee body must be genuinely independent and effective.

Schemes that could not meet these requirements were required to wind up and transfer members to qualifying schemes. This consolidation process removed weaker operators and left a smaller number of more robustly run master trusts.

The Pensions Regulator continues to supervise authorised master trusts, with particular attention to investment governance, member communications, and value for money.

Auto-Enrolment and the Master Trust

Auto-enrolment — the requirement for employers to enrol eligible workers into a qualifying pension scheme automatically — created massive demand for accessible, ready-made pension solutions. Master trusts met this demand precisely.

NEST was established by the government for exactly this purpose. It is the scheme of last resort: NEST must accept any employer, regardless of size, sector, or workforce profile. Before NEST existed, very small employers had difficulty finding pension providers willing to take them on.

Under auto-enrolment, the employer's obligations are:

• Enrol all eligible workers (aged 22 to state pension age, earning above £10,000 per year)
• Contribute a minimum of 3% of qualifying earnings (the employer's share)
• Deduct the employee contribution, so that total contributions reach the statutory minimum of 8% of qualifying earnings (the employee typically funds 5%, of which 1% is tax relief)
• Pay contributions over to the scheme within prescribed timescales (currently 19th of the month following deduction for payroll taxes, though pension rules are slightly different)

Most small and medium employers satisfy these obligations by joining a master trust. They sign a participation agreement, provide payroll data to the scheme, and pay contributions. The master trust handles everything else.

Investment in a Master Trust

Members of a master trust typically have access to a range of investment funds, with a default fund into which members are placed unless they actively choose otherwise.

The default fund in most master trusts is a lifestyle or lifestyling strategy — a multi-asset fund that gradually de-risks as the member approaches the scheme's default retirement age. In the accumulation phase (decades before retirement), the fund is typically equity-heavy. As retirement approaches, it shifts toward bonds and cash.

This default approach was designed for a world where most members would buy an annuity at retirement. Since the pension freedoms of 2015 made drawdown the dominant choice, the suitability of lifestyling defaults has been questioned. If a member plans to stay invested in drawdown rather than buy an annuity, de-risking automatically into bonds and cash may not serve them well.

Members can typically select from a broader fund range if the default does not suit them. Larger master trusts offer a choice of equity funds, index funds, fixed income funds, and sometimes ESG or responsible investment options.

Governance of the default fund is an important master trust function. The Independent Governance Committee (in contract-based schemes) or trustees (in trust-based master trusts) must regularly review the default strategy and satisfy themselves it remains appropriate for the membership. The FCA and Pensions Regulator both require evidence of this review.

What Happens to a Master Trust Pension When You Leave?

When an employee leaves a job, their master trust pension becomes a deferred pot. The pot remains in the scheme, invested according to the member's fund selection (or the default). Active contributions stop, but the pot continues to be managed by the master trust on the member's behalf.

The member receives:

• Continued access to the scheme's online portal
• Annual benefit statements
• The right to transfer the deferred pot to another scheme at any time

Members with deferred pots have several options:

1. Leave it in the master trust — the pot remains invested and can be accessed at retirement. For small pots, this is often the path of least resistance, but it risks the member forgetting about the pension over time.

2. Transfer to a new employer's scheme — if the new employer offers a pension (which is likely mandatory for auto-enrolment purposes), the member can request a transfer to the new scheme.

3. Consolidate into a SIPP — a Self-Invested Personal Pension gives the member full investment choice and control. This is often the right choice for those accumulating multiple deferred pots from different employers.

4. Transfer to a QROPS — for members emigrating permanently, a transfer to a Qualifying Recognised Overseas Pension Scheme may be appropriate once the member is resident outside the UK. The standard QROPS rules apply.

Master Trusts and the Expat Dimension

For internationally mobile individuals, master trust pensions raise specific questions.

Contributions while working abroad: If a UK employer posts an employee abroad, auto-enrolment obligations generally do not apply to the overseas portion of employment. The employment contract should specify what happens to pension contributions during an international posting — some employers maintain contributions under contractual terms; others do not. Members should be proactive in understanding what their employment contract says about pension provision during a posting.

Deferred pots left behind: Many expats have deferred master trust pensions from former UK employment. These pots may be modest — the auto-enrolment minimum contributions of 8% of qualifying earnings above £6,240 do not generate large pots quickly — but they accumulate over time and should not be overlooked.

Small pots: Where the deferred pot is small (under £10,000), the small pot commutation rules may allow the member to take the pot as a lump sum — 25% tax-free, the rest taxable as income — without triggering the Money Purchase Annual Allowance. For expats with multiple small deferred master trust pots, this can be a relatively straightforward way to resolve them.

Transfer to QROPS: For expats with meaningful sums in master trust schemes, transferring to a QROPS at the point of permanent emigration may be appropriate. The master trust administrator will require a formal transfer request, a QROPS scheme reference from HMRC, and confirmation of the member's overseas residence. Regulated financial advice is required for any transfer from a defined benefit scheme; for a defined contribution master trust transfer, regulated advice is not legally required (unless the transfer value exceeds £30,000 from a DB scheme) but remains strongly advisable.

The Value for Money Framework

The Pensions Regulator and the FCA have been developing a value for money (VfM) framework for defined contribution workplace pensions. This framework, expected to be implemented progressively from 2025 onwards, requires pension schemes — including master trusts — to assess and disclose whether they deliver value for money to members, judged against three elements:

• Investment performance — net of charges, how do returns compare to comparable schemes?
• Costs and charges — are the charges competitive and proportionate?
• Quality of service — do members receive accurate, timely, and helpful communication and administration?

Schemes that cannot demonstrate value for money relative to peers will be expected to take action — which in practice may mean consolidating into a larger scheme or improving their proposition. This framework is likely to drive further consolidation in the master trust market over the coming years, with the very largest schemes absorbing smaller ones.

For members, this is positive: it should produce better-governed, lower-cost schemes. For employers, it means periodic reviews of whether their current master trust provider remains the best choice.

Choosing Between a Master Trust and Other Arrangements

For most employers, particularly SMEs, a master trust is the most practical choice for auto-enrolment compliance. The absence of any setup or governance burden on the employer is a significant advantage.

For larger employers, or those with a distinctive workforce profile (highly compensated employees, a high proportion of international staff, or a desire to offer equity participation or matching contributions above the auto-enrolment minimum), a more bespoke arrangement may be appropriate. Options include:

• Group Personal Pension (GPP) — contract-based rather than trust-based; similar member experience but different regulatory oversight
• Single-employer trust — the employer establishes its own scheme; more control and flexibility but higher setup and governance costs; increasingly rare for DC schemes
• SSAS (Small Self-Administered Scheme) — suitable for small groups of senior employees; offers more investment flexibility including commercial property

For employees — particularly those with significant pension wealth or international mobility — the choice of where to consolidate accumulated master trust pots is often more important than which scheme the employer happens to use.

How Global Investments Can Help

Master trust pensions form a significant part of many clients' retirement savings, particularly those who have spent years in UK employment before moving internationally. Our advisers help clients:

• Review all deferred master trust and workplace pension pots accumulated during UK employment
• Assess whether consolidation — into a SIPP or, for permanent emigrants, a QROPS — is appropriate given the client's circumstances
• Understand the value for money of existing master trust arrangements and whether changing provider or transferring makes sense
• Structure pension withdrawals from deferred master trust pots in a tax-efficient manner

The guidance in this article is general in nature. Pension rules are complex and subject to change; individual circumstances vary considerably. This article does not constitute regulated financial advice. We recommend taking professional, regulated advice before making any pension transfer or consolidation decision.