Default pension strategies have 'major variations' – Punter Southall

Default pension options in the UK have “major variations” in design, investment strategy, asset allocation and performance, analysis from Punter Southall Aspire has found.

It produced two reports from data provided by sister company Camradata, examining nine default funds in both the growth and consolidation phases of retirement.

In the growth phase, Punter Southall found that the best performer over the last three years was Scottish Widows, at 11.3 per cent, but that it had a relatively higher level of risk (8.4 per cent).

Standard Life (Stan Life Active Plus III) was found to have the worst performance of those surveyed (5.4 per cent) but had a consistently lower level of risk (5.2 per cent).

Commenting, a Standard Life spokesperson said: "The investment approach of Standard Life’s Active Plus III is to maximise returns for customers for a level of risk.

"The fund is much more diversified and takes less risk than many other funds which have more concentrated strategies and comparatively high levels of equity exposure.

"Our focus is on the long term and ensuring that Active Plus III is likely to deliver the returns members need, at a level of risk that members are willing and able to make, that helps them to meet their target as consistently as possible."

The average allocation to equities was around 66 per cent, with Scottish Widows’ Pension Portfolio 2 and Fidelity’s Growth Portfolio having the highest exposure at approximately 85 per cent, while Legal & General’s Multi Asset Fund had the lowest exposure at around 35 per cent.

Default options allocated an average of 25 per cent on fixed income, with Legal & General’s Multi Asset Fund having the highest allocation at 45 per cent.

Punter Southall said that these figures highlighted the significance of asset allocation to maximise member returns.

In the consolidation phase, at the 'five years before retirement' portfolios, Legal & General’s Multi Asset Fund was the best performer (9.1 per cent), but had a comparatively higher level of risk (6.5 per cent) while Standard Life (Universal Strategic Lifestyle Prolife) was found to have the worst return (5 per cent) compared to risk taken (4.7 per cent).

In the 'at retirement' portfolios, Legal & General’s Multi Asset Fund was again the best performer (9.1 per cent) but had a high risk level (6.5 per cent).

Commenting on the findings, Punter Southall Aspire DC investment consultant, Christos Bakas, said: “This year, we’ve seen increased volatility in global asset markets, which means returns are much harder to achieve. This is reflected in our latest reports which reveal major variations in outcomes across nine DC providers.

“We urge employers to monitor the performance of their pension funds more closely, as default doesn’t mean standard, and not all funds are created equally. Employers need to keep on top of their funds and regularly check their performance; otherwise they may be putting their employees’ pension pots at risk.”

Punter Southall also noted that fees in both phases are “crucial” in the performance of default strategies and that a more diversified and sophisticated default option has higher total costs.

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