DC Providers in UK Differ in Default Offerings

October 6, 2008 (PLANSPONSOR.com) - Defined contribution providers in the UK are suggesting a change to default investments with more diversification, longer de-risking periods, and more exposure to growth assets at retirement.

However, according to the 2008 PensionDCisions DC Default Provider Survey in association with FT Business, the providers surveyed agree little on the details of the default solutions they advocate.

According to a press release, fund objectives cited by the DC providers included absolute rate of return, return relative to inflation or interest rates, outperformance or tracking of asset benchmarks, and other approaches. Opinions on proper asset allocation to meet the objectives is also diverse, with half of the fourteen provider funds directing some assets to real estate or alternative assets, and the remaining allocated to equities, bonds and cash. Where equities are used the allocations vary significantly from 37% to 100%, the release said.

Use of investment management styles within asset classes ranges from entirely passive approaches to dynamic asset allocation and significant use of actively managed sub-funds.

As for a de-risking ‘glide path’ to retirement, five providers do not believe a glide path is necessary. Among those who do endorse a glide path, opinion varies with respect to time horizon and at-retirement asset allocations.

With the range of solutions available in the market, the findings point to the need for robust governance and plan member communications. “Monitoring a default solution relative to its benchmark says relatively little about whether the members invested in it are receiving an appropriate and competitive level of risk and return,” the press release said.

A full copy of the report is available on request at www.PensionDCisions.com .