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Research touts growth of investment only DC providers

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  • Research touts growth of investment only DC providers

UK - The UK pensions market could soon see a new form of defined contribution (DC) investment provider grow in popularity, according to a London-based marketing intelligence firm.

Spence Johnson believes its research indicates that the British pension market will soon embrace the concept of Defined Contribution Investment-only (DCIO) as a new third-party investment provider.

The company argued in its report, entitled Entering the DCIO market - Building a UK business plan based on lessons from the US, that growth in the area will follow on naturally from developments in the United States, where it claims the DCIO approach represents almost half of the current DC market.

DCIOs distinguish themselves against a DC scheme which acts as a bundled provider - where both investments and administration are tended to by the same organisation - and companies that solely handle the investment aspects of the DC scheme, according to research.

Spence Johnson's Nils Johnson claimed the growth of this new system is inevitable, as defined benefit schemes are now "virtually extinct" following their closure to new members.

Similarly, aided by the rollout of the government's new National Employment Savings Trust (NEST), "DC will accelerate the good things that are happening in the manufacturer funds".

Johnson argued that the investment-only approach will claim a 20% share of all asset management sales by the end of this decade, adding that the speed of growth will be helped greatly by the opportunity to learn from mistakes made in the US market.

He cited an American proposal to create a save haven for employers, so that they cannot be sued by employees for bad investment decisions, as one of the lessons the UK should learn from.

Magnus Spence, also of Spence Johnson, said he believed DCIO concept "will become as important to institutional asset managers as DB was in the past".

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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