Less than a third of defined contribution pension schemes in the UK set their default investment strategy with the aim of 'delivering a target level of replacement income in retirement' according to consultancy Hymans Robertson.
A fifth of employers surveyed said they weren't sure if their strategy was in line with this goal, while a quarter said their default strategy aimed merely to “maximise returns for members”.
The survey of 102 human resources and finance directors also found that about a third of employers do not regularly review the performance and suitability of their default investment fund.
Hymans Robertson said the research indicates that defined contribution pension schemes are not meeting the needs of their members.
“The evidence suggests that many DC schemes have been set up without any real thought as to the outcome or impact of their design, particularly from an investment point of view,” said Lee Hollingworth, head of DC at Hymans Robertson.
“In many cases the default fund, which is central to DC scheme success, is decided upon at launch and then left alone for years on end without regular assessment of whether it is aligned with members’ aims.”
Hollingworth said DC schemes could be improved by “recognising that a one size fits all default fund is inadequate”. Schemes ought to offer multiple default funds, he said, suitable for members on different incomes.
“Low earners, who will likely receive a higher share of their retirement income from the state, are almost certain to have different requirements and risk attitudes to high earners in the same scheme,” he said. “To put them in the same default fund just doesn’t make sense if you are trying to reach retirement replacement income targets for each group.”
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