UK - Institutional investors are more concerned that defined contribution (DC) plans will provide an inadequate income for retirement than the possibility that pension buyouts will shrink the investment industry, research by Watson Wyatt has revealed.
The results of the consultant's 2020 Vision Survey showed respondents felt inadequate retirement incomes is more of a concern than the effect of poor economic and market conditions or the possibility that increasing national protectionism would limit global portfolio flows.
In its survey, Watson Wyatt outlined 10 "undesirable" scenarios that could take place in the pensions market within the next 10 years, however the top three results showed respondents - including asset managers, institutional investors, intermediaries and investment bankers - were less concerned about issues such as "excessive remuneration" than the asset allocation in DC plans.
Paul Trickett, European head of investment consulting at Watson Wyatt, pointed out the pensions industry's attention has remained largely focused on defined benefit (DB) schemes, 'even though global assets invested in DC schemes are likely to exceed those in DB plans within the next five to six years".
As a result of this trend towards DC schemes, the survey revealed 21% of respondents believed inadequate DC retirement income was a top three concern in the next 10-20 years, while 19% chose excessive 'short-termism' for fear it would cause poor capital allocations and cost increases, and around 12% ranked increased regulation and increased complexity as a top concern.
Findings meanwhile revealed the 500 respondents - of which two-thirds were based in Europe - are least concerned about a shrinking investment industry because of a successful buyout market - which was chosen as an option by around 2% - while the possibility of a series of scandals hitting investor confidence was only a concern to around 9%.
Despite these concerns relating to DC schemes Watson Wyatt claimed there are now more "sophisticated investment approaches" for individuals to use when allocating their assets, although it said it challenged providers to "innovate more to provide a new generation of cost-effective DC plans".
The consultancy firm argued there is a need for solutions which appear simple, but which are underpinned by a sophisticated investment rationale rather than just providing a large choice of funds, particularly in relation to default arrangements.
Trickett said: "DC investment portfolios have become more diversified than in past years, largely by using open architecture arrangements and members would have felt the benefit during recent market turbulence."
That said, Trickett claimed apathy around pensions is driving employers to take a bigger role in financial education, as the majority of active workers in the UK are now in DC plans and employers are realising the "benefits of a workforce that is well-informed about pensions".
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