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18 Sep 2017

Analysis reveals ´huge variations´ in workplace pension returns

Millions of workers have started saving for retirement in a company pension since the launch of automatic enrolment in October 2012. But there are “huge variations” in the returns on offer, according to a new analysis by Punter Southall Aspire.

The pension consultants examined nine major defined contribution (DC) pension providers´ default pension funds in their growth phase and found they varied in terms of design and construction, investment risk and volatility, asset allocation strategy, return benchmarks and management. Critically, there were also wide differences in performance, with some funds producing returns nearly twice as high as others.

The findings suggest that far more scrutiny is needed by employers to stop them unwittingly putting their employee pension pots in jeopardy, Punter Southall Aspire said.

In general, the growth phase of the average default options for the providers shows that most funds have significant exposure to equities to maximise growth. The average allocation to equities was around 62%, with Scottish Widows´ default having the highest exposure at 85%, while Legal & General has the lowest at 45%.

Default options also hold a significant portion of Fixed Income, allocating 26% on average to this asset class, the analysis found. Legal & General and Fidelity have the highest allocation with 47% for both, while Royal London has the lowest exposure with 0%.

Steve Butler, chief executive of Punter Southall Aspire, urged employers to examine all aspects of their DC default fund to understand exactly what they are getting and how their funds are performing.

“With greater numbers of savers now enrolled in pension funds, employers have a duty to scrutinise their schemes to ensure they are on track to deliver the best retirement outcomes for their people,” Butler added.

Copyright © M2 Bespoke 2017

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