UK DC funds need better approaches to lifestyling to meet members’ needs, according to the Pension Investment Academy (PIA).

PIA executive director Trevor Cook said more is needed to be done to design “better default strategies for tomorrow’s DC members”.

“It is no longer appropriate to assume that current strategies will work in the future,” he said.

His comments followed a PIA seminar on delivering better outcomes to DC. Speakers included Nest director of investment research Rudyard Ekindi and BNY Mellon head of retirement Catherine Doyle.

Improved lifestyling techniques, as well as improved anticipation and monitoring of, volatility and movements in markets could improve funds, they suggested.

As Doyle explained, recent research by BNY Mellon and Cass Business School argued for asset allocation strategies based on a member’s proximity to a defined retirement income target. Traditional lifestyle approaches, by contrast, automatically switch funds to less risky asset classes a specific number of years before the expected retirement date.

Doyle said: “Traditional target date funds are too mechanistic to take account of factors such as capital market movements and members’ desired outcomes. They can, arguably, be a rather crude tool.”

Both diversified growth funds and target date funds showed possibilities for more dynamic approaches, she added.

“People can be disappointed with the lack of flexibility in traditional life styling and these strategies' failure to react to changes in the markets nimbly enough. Some newer strategies offer far more flexibility to achieve the desired outcome.”

Other contributors to the seminar yesterday stressed the responsibility of trustees. While it was important that schemes engage with their membership to ascertain appropriate risk tolerances, trustees and employers must establish the most appropriate default strategies for their membership, they argued.

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