UK - Trustees need to do more to ensure AVC members understand their investment options as a Watson Wyatt survey reveals some investors may have their assets under the wrong risk profile.
A study of contributions and investment fund choices of 28,000 members of additional voluntary contribution (AVC) pension savings vehicles reveals trustees may need to offer more education and information about investment risk because almost a third of members approaching retirement still have their assets in higher-risk investment strategies.
In contrast, suggests the Watson Wyatt survey, younger people, with more than 30 years to retirement, may be unaware of the need for ‘lifecycling' of investments - starting with a higher-risk investment strategy at a younger and adjusting the risk to reflect the risk to capital as holders approach their goal - as one in 10 is holding some of their pensions assets in cash.
More than 60% of members who previously held assets in with-profits and managed funds also moved their funds into cash.
It suggests trustees are failing to ensure members of AVC schemes have knowledge of risk ‘lifecycling' and sufficient information to make the appropriate investment decisions, says Gary Smith, senior consultant at Watson Wyatt.
"The evidence suggests a lack of understanding from individuals on risk and [older] people have maybe defaulted into the equity box when they started the plan, but a couple of years to retirement they are still in equities rather than moving into bonds and cash," said Smith.
"I do sympathise with trustees as they have a huge amount of work to do but if they want to be offering AVCs, they don't have any choice, they have got to be dealing with member education."
He continued: "It does not need to be a huge focus, just ensuring there is a little more management of the investments and whether they are being communicated effectively. They could perhaps get the pension providers to better communicate the [investment] options available but it an issue they should be managing as part of their duties," said Smith.
At the same time as the survey revealed how assets were invested, Watson Wyatt discovered the average AVC is £180 a month for someone in their 50s, dropping to under £100 a month for those in their 20s.