UK - The UK's National Employment Savings Trust (NEST) and auto-enrolment will serve as a significant catalyst for change in the UK pension landscape, according to investment manager AllianceBernstein.
Unlike in the US, where a 401k retirement plan is commonplace and widely understood, the UK has a very confused pensions landscape, according to Tim Banks, director of Defined Contribution (DC) sales and client relations at AllianceBernstein.
"But with the advent of NEST, people now look at their options with a much more open mind," he said at a seminar on the outlook for DC pensions and retirement planning, adding: "If you get the default right in DC, it will improve member engagement."
Banks was critical of current lifestyle strategies, which, he says, are just an administrative mechanism, blindly moving members into a series of funds at certain dates regardless of the market environment. He was also critical of an average of six months passing before changes to the typical lifestyle strategy took effect.
He argued that his company's offerings were more effective in implementing change gradually, still allowing for some risk exposure.
"As the strategies can be changed on a scheme-by-scheme basis and are managed on a daily basis by an asset manager you cannot only incorporate the specific membership needs of each scheme but also manage risk more effectively around them," said Banks.
David Hutchins, head of DC research and design at the company, was also highly critical of the use of annuities. Ireland is the only two countries where buying one is mandatory, after the UK recently abandoned forced annuitisation.
"Annuities are, contrary to market convention, extremely risky products for individuals when they first retire, typically providing no inflation protection," he said.
Hutchins added: "The problem is current alternatives see as much as a third of the money disappearing in fees. But they remain a good product for older, over age 80, pensioners."
He also suggested that an automatic increase in contribution levels with every pay-rise would help guarantee the funds paid into DC schemes are sufficient.