UK - A third of defined contribution (DC) schemes in the FTSE 100 have altered their investment strategy in the past year, and included a greater use of more specialised investment funds.

Findings from the Towers Watson annual FTSE 100 DC Pension Scheme Survey also revealed almost 80% of trust-based DC schemes are using an investment gateway to deliver the trustees' investment strategy and access investment managers. This gateway provides a single interface between the administrator and any number of investment managers including the use of bespoke funds.

Gary Smith, senior investment consultant at Towers Watson, said: "Historically, investment options available to occupational DC pension funds were both inadequate and inefficient, resulting in severe constraints when setting investment strategy. It is pleasing to see many more fiduciaries breaking free from these constraints and limitations by using an investment gateway to fulfil their duty of providing the best fund choice for their members."

The survey results highlighted a preference for smaller fund ranges and specialist funds in the third of schemes that have altered their investment strategy, particularly among contract-based schemes. Towers Watson revealed over a third of responding schemes now offer ethical funds compared with a quarter last year, while the number of pensions offering Shariah-compliant funds has doubled.

"Excessive investment choice is really not a sensible approach as it exposes members to excessive risks and adds considerably to governance burdens," said Smith. "The use of specialist investment products is becoming steadily more popular, as they become easier to offer through white-labelling and investment gateways. DC members can now, for instance, more readily access the benefits of diversification. However, they need to be aware some of these choices come at a price," said Smith.

Figures from Towers Watson suggested DC assets now comprise 42% of global pension assets, and over a third of FTSE 100 DC schemes each have over £50m in assets.

It also suggested that the survey results, showing around 50% of trust-based schemes use bespoke white-labelling of funds, reflect the fact that trustees and fiduciaries are beginning to take "proactive control of the DC investment strategy".

Smith added: "There are positive signs that leading schemes are now being designed around a better understanding of their membership and that investment innovation is producing more efficient, risk-adjusted and personalised portfolios."

DC research elsewhere, however, from Punter Southall suggested a quarter of employers have reported staff cutting or suspending pension contributions because of the financial crisis, yet just 10% had reduced employer contributions.

Punter Southall's survey of 330 employers with DC pensions revealed that 90% of employers contribute to their employees' pension arrangements,even though 92% feel the employee is primarily responsible for their own retirement provision. Findings also suggested that 75% of employers feel some responsibility towards their employees' financial education, while 70% of schemes have at least 70% of their members in the default investment option.

Other results from the 'DC Pensions in the UK Workplace' survey showed 55% of companies use salary sacrifice for contributions, and while 86% expect a change of government this year, 57% do not think it will have an impact on pension legislation.

Damian Stancombe, head of corporate DC at Punter Southall, said: "The credit crunch has led to a backward step in pension contributions by employees who have had to tighten their purse strings, though employers seem to be doing their utmost to maintain workplace pension provision. With the fate of final salary schemes now sealed, the focus must now be on ensuring a successful future for DC schemes."
He argued the UK requires a retirement framework that encourages saving in a simple tax-efficient environment, albeit within certain limits. "The move towards auto-enrolment or compulsion has the potential to form part of the solution, but needs clear thinking and a consensus among all stakeholders," said Stancombe.
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