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IPE special report May 2018

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Evidence sees plan types divided on DC choices

UK - Pensions investor still face a "surfeit of choice" as seven out of 10 contract-based occupational defined contribution (DC) schemes give their members 20 or more funds to invest in, Watson Wyatt has found.

An investigation into contract versus trust-based DC schemes found 68% of contract plans give policyholders 20 investment funds or more to choose from, compared with just 6% of trust-based schemes.

Moreover, over 60% of these schemes offer 10 funds or less to choose from, at a time when many consultancies have sought to point out providing too much choice may be dissuading pension schemes members from selecting the most suitable investments to their needs.

Crispin Lace, senior investment consultant at Watson Wyatt, also pointed out contract-based plans have over 80% of their membership in the ‘default' option of their investments.

"With 30% of these plans now each having over £50m in assets, the DC market now looks more attractive to providers and asset managers. This should be positive for members because increased competition will theoretically improve the DC investment proposition. However, excessive investment choices can lead to members making wrong fund choices and unintentionally taking on inappropriate risks and costs," said Lace.

That said, he notes some schemes are beginning to recognise the increasing calls to cut investment choice.

"…We are starting to see some funds in the survey reducing the number of fund options available," he continued.

"This is a positive development, as is the indication that more plans are taking greater responsibility for maintaining their default and other options through the use of an investment platform or investment gateway," added Lace.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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