Differences in the structural design of default investment strategies are leading to significant variation in defined contribution (DC) retirement outcomes, analysis from Hymans Robertson has revealed.

Its latest DC Provider Insights report found that, despite appearing similar at a headline level, default strategies across providers can deliver markedly different outcomes for members, with asset allocation, portfolio construction and the breadth of assets used all playing a key role.

The report assessed default strategies used by master trusts and group personal pensions (GPPs), modelling outcomes for members at three stages: 30 years, 10 years and five years from retirement, as well as examining post-retirement approaches.

It found that for members furthest from retirement, outcomes are primarily driven by the level and type of equity exposure, with higher allocations to equities generally supporting stronger long-term returns despite volatility.

However, the analysis also highlighted that variation between providers remains significant, with differences in strategy design leading to wide disparities in projected pot sizes across the market at all stages of the retirement journey.

For those approaching retirement, most providers reduce risk and introduce diversification, but differences in how this is implemented continue to result in divergent outcomes.

Indeed, even within five years of retirement, when de-risking is standard practice, default strategies still produce notably different results, underscoring the continued importance of provider choice.

The report also warned that these differences extend into retirement itself, with post-retirement strategies varying widely and influencing the sustainability of income withdrawals.

Hymans Robertson head of DC provider relations, Shabna Islam, said the findings demonstrated that seemingly similar default approaches can mask meaningful differences in member outcomes.

“The report shows wide variation in retirement outcomes depending on the provider. It shows us that design decisions matter and they can translate into meaningful gaps in members’ retirement outcomes.”

She highlighted that provider choice is particularly important for younger savers, warning that those in lower-risk strategies early in their savings journey may miss out on the growth needed to support retirement adequacy.

“For members who are still some distance away from retirement, the choice of provider is particularly important,” she continued.

“Those saving through provider defaults that have higher exposure to equity markets have generally seen better outcomes projected for them over the long run, despite market volatility.

"Members in lower risk strategies at this stage could be missing out on the growth potential that is needed to support future retirement adequacy.”

Islam also noted that differences in approach become more pronounced as members move closer to retirement, particularly in how providers diversify portfolios and allocate across asset classes.

“As members move closer to retirement, most providers aim to reduce risk and introduce greater diversification. Differences emerge in asset allocation, portfolio construction and the asset class opportunity set.

“This is expected to lead to variations in projected member outcomes across providers – it means the choice of provider will have a big impact on members’ outcomes.”

Looking ahead, Islam said the focus for providers must shift towards building more resilient strategies that can perform across varying market conditions and member behaviours.

“With over £370bn invested across the providers’ default strategies covered in this report, this scale, along with stronger governance and more effective use of a wider range of assets, all have a part to play to improve member retirement outcomes,” she added.

“The direction of travel is clear. The challenge now is making sure these changes are implemented well, so members benefit from more resilient strategies and a better chance of achieving a sustainable income throughout retirement.”

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