DC investment strategies 'a decade' behind DB

Written by Theo Andrew

Defined contribution investment strategies are “at least a decade” behind defined benefit strategies, it has been said.

A Hymans Robertson survey of 100 pension trustees found that 42 per cent of DC trustees felt that its investment strategies “lack the sophistication” of DB schemes, with 40 per cent saying they would never catch-up.

Despite this, 37 per cent of trustees of larger schemes, those with assets of over £100m, felt that DC investment strategies was likely to catch up over the next five years.

Almost three-quarters, 43 per cent, of trustees with assets less than £100m felt DC would never be as sophisticated.

Hymans Robertson head of DC investment, Raj Shah, said: “It’s difficult to ignore how much the DC investment landscape has evolved in the three years since pension freedoms were introduced and the results of our research make it clear that DC strategies fall behind DB in terms of sophistication.

“The sheer scale of assets enjoyed by DB schemes provides them with greater scope for sophistication and innovation, so much so that even the largest DC trust schemes that exist today would struggle to enter into the same investments.”

Shah added that smaller schemes would have more trouble receiving the “benefits of scale” enjoyed by bigger schemes.

“As long as the scale of assets in DC continues to grow and access to alternative asset classes widens, then sophistication in DC investment will improve. While price and contribution to risk-adjusted return will still be the major factors to consider when selecting an asset class, it is refreshing to see that DC product development is steadily gaining traction,” he concluded.

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