DC Sponsors in the UK Rely on Investment Consultants for Default Design

April 15, 2010 (PLANSPONSOR.com) - The PensionDCisions 2010 UK Sponsor Default Survey finds investment consultants’ influence on default design is cited by 85% of UK plans, as opposed to 56% of U.S. plans.

In addition, the survey indicates the top three consultants have a 70% share in the UK versus 26% in the U.S. The top three investment managers of default solutions in the UK account for 73% of plans, versus 62% in the US, according to a press release.  

Survey findings suggest that risk adjusted performance over three years to December 2009 is superior where fund managers are responsible for asset allocation decisions. Between the three different entities driving asset allocation (fund managers, consultants, and plan sponsors/ trustees), the average annualized performance differential was 2.6%.  

During the growth phase, depending on the consultant influential in the design of the default solution, the average equity allocation can range from 94% to 68%. At retirement, depending on the consultant influential in the design of the default solution, the average cash allocation can range from 41% to 24%.  

Since 2007, the average default rate in UK DC plans has remained constant between 78% and 81%, according to the announcement. Fifty-four percent of plans intend to review or change their default strategy in the near term, up from 20% in 2009.  

The survey finds that plans for which the sponsors do not believe that member reliance on default funds represents a commercial risk exhibit a significantly lower default rate (72% versus 86%) and a slightly higher level of diversification in asset allocation. A higher proportion of contract-based plans perceive a risk related to reliance on the default strategy than trust-based plans.  

The survey also found that market for recordkeeping (third-party administrator) services is highly fragmented in the UK and highly concentrated in the U.S. Two of the three largest recordkeepers also offer investment consulting services, and in more than 60 per cent of cases, the same company has both the recordkeeping and investment consulting mandate.  

The PensionDCisions 2010 UK Sponsor Default Survey analyzes default design and plan characteristics across 62 large UK DC plans which collectively represent 630,000 DC members and £10.7bn in assets.  

A full copy of the survey can be obtained from April 19 at http://www.PensionDCisions.com.