UK – Defined contribution (DC) pension plans in the UK are set to grow by 11.6% per year over the next decade, new research has predicted.
The total asset pool held by members of DC workplace pensions is currently £276bn (€340bn), but this will triple in value to £829bn by 2022, according to the annual DC Pensions Research study from Spence Johnson, the research consultancy specialising in pensions.
The study showed that the projected DC growth would stem mainly from the growth in scheme membership, from 7.8m in workplace DC schemes at present to more than 17m in 2022, including new memberships in the National Employment Savings Trust (NEST).
Growth will also be fuelled by increases in the average amount of assets owned by each member, from the current £35,000 to £48,000 per membership by 2022.
According to Spence Johnson, this predicted growth rate is similar to that experienced in other DC markets when they went through similar phases of growth.
Australia's DC market grew by 12% per year, while the US saw annual growth of 11%.
However, growth rates will vary between different market segments.
The study predicts a 30% per year growth rate for very large contract-based schemes, while very small trust-based schemes may actually shrink by over 5% per year over the next decade.
Magnus Spence, director at Spence Johnson, said the research had important implications for product providers.
"They need to know what the growth in DC schemes will be in order to invest in products and services for the market in the coming years," he said. "Otherwise, they won't be able to make the capital commitments required."
He pointed out that there was always a cost to developing new asset management offerings.
And target date funds, for example, are particularly capital-hungry because they need seed capital before they can start attracting new money.
"Furthermore," he said, "admin providers also need to create systems and admin processes in order to service pension funds, and these are capital hungry too.
"Workplace savings platforms, for instance, can cost as much as £30m to build. These companies have to fund product development with capital, and data like this will give them the argument for doing so."
Spence added that the figures would also be useful for pension funds themselves: "They will enable pension funds to understand the extent to which they will grow in future, so they can prepare the facilities to cope with this extra flow of resources, in terms of money and members."