UK - Recent volatility in pension default fund investments has suggested there is a need to shift away from lifestyling towards alternatives such as absolute return funds, according to Punter Southall Financial Management.

In a report on 'DC pensions in the UK Workplace' the corporate pension advice arm of Punter Southall Group highlighted the issue of default funds as 66% of non-stakeholder schemes offer this choice.

Of the schemes that offer a default fund, 75% include a lifestyle approach, and less than a quarter of pension members in 68% of these schemes invest outside of the default.

Results also found only three respondents from the 300 employers polled offer a default pensions fund containing an absolute return fund, yet Punter Southall claimed this type of fund will become the standard default option in the future.

It stated: "Despite the comparatively low level of current usage, we envisage some form of absolute return fund becoming the in-vogue default choice over the coming years. Whilst we would hope that these funds will deliver outperformance in the long-term, their ability to de-risk in times of financial difficulty should certainly provide steady, smoothed returns at an acceptable level.also revealed only 2% of respondents plan to solely offer personal accounts to employees.

Damian Stancombe, principal and head of corporate DC at Punter Southall Financial Management, said: "It is now clear that DC is the favoured pension vehicle. But whilst it is fair to state that the provision of DC has improved in recent years, there is still much work to be done."

"Relevant and quality investment options must be created that fulfil people's needs and offer them security. Our survey shows that for most schemes, over 75% of members invest in the default investment option, which is often not an appropriate choice," he added.

The firm's own research into appropriate default funds comes just after the Personal Accounts Delivery Authority published its own views on the importance of a good default fund for the personal accounts it will roll out in 2011. (See earlier IPE story: PADA initiates discussion on investment)

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