UK – Target-date funds are proving less popular than a ‘lifestyling’ approach to defined contribution (DC) default pension funds, respondents to a survey by the National Association of Pension Funds (NAPF) have said.

The NAPF, publishing case studies of eight default funds, found that member charges averaged around 50 basis points and noted a “strong focus on driving value for money over lowest cost”.

Its research also found difference in opinion on when default funds should begin de-risking ahead of retirement, although the average – at 16 years before retirement – was found to be on the rise despite some outliers opting for de-risking only five years prior to retirement.

Of the eight case studies – including the National Employment Savings Trust (NEST), the £586m (€696m) DC fund for Bank of America staff and Dutch brewer Heineken – it was found that six opted for a default option with lifestyling, whereas only two preferred a target-date approach.

Commenting on the preference for lifestyling, an unnamed investment consultant responding to the survey said: “We’re not seeing that much interest in target date, to be honest. Target date is lifestyle with a different label, and it’s just picking a different date, really.”

Across the case studies, the NAPF also found that none of the default funds opted for an active approach within a pure equity fund, but that the active management mandate was usually confined to a diversified growth fund (DGF).

A second unnamed investment consultant said that more expensive investment options, such as DGFs, were employed as a counterbalance to passively managed elements of the default fund.

“This means you make best use of your risk budget, and you get the best return opportunity for a given risk level and cost outlay,” the respondent said.

The NAPF warned those redesigning their default funds to allow for sufficient time to complete the task, as it found that the eight case studies spent an average of two years on a new investment approach, and some deliberated for as long as three years before the new default fund was in place.

This was particularly noteworthy in light of research from Spence Johnson – cited by the NAPF – that found 15% of DC schemes had yet to put in place a default fund, despite such a fund being a legal requirement before the scheme could accept an auto-enrolled workforce.

“With all schemes being used for automatic enrolment required to have a default fund in place for members,” Spence Johnson said, “the proportion of schemes with active members without one is expected to decline over time and be increasingly restricted to legacy schemes.”