Top DC default funds have wide performance gap

Pension old woman 410The top ten default funds for auto-enrolled defined contribution (DC) pension scheme members in the UK have a difference in returns of 6% annually and could dramatically alter a pensioner’s life style, it is warned this week.

The loss could be worth £500,000 (€704,000) over a lifetime, says JLT Employee Benefits.

Performance ranged from about 3.5% to 9.5% per annum over the last three years, meaning employees auto-enrolled into the lowest performing funds have been losing out on 6% return per year compared to those in the best performing funds.

The research also uncovered big differences in volatility levels between the top ten default funds, with numbers ranging from circa 5.3% to 11.3%.

The figures underline the importance for companies to choose the best default strategy, as well as the best provider, for their employees, says Maria Nazarova-Doyle, head of DC investment consulting at JLT.

“Losing out on a 6% return per year could have a huge, irreversible repercussion on members’ financial position at retirement. For example, a person in their thirties saving 8% of their £30,000 per annum salary in a DC pension could end up with circa £185,000 at retirement instead of circa £715,000. This can dramatically change a pensioner’s life-style.”

JLT would not reveal the list of the top ten funds in its research.

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