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Schroders’ 5th FTSE DC report shows significant diversification of investment

This edition of the Schroders’ FTSE Default DC schemes report is our fifth analysis of the defined contribution (DC) pension landscape among the top listed companies in the UK. The aim of this six monthly report is to shine a light on default DC schemes during the accumulation phase in order to examine their different asset allocation strategies.

08/06/2015

Schroders’ 5th FTSE DC report shows significant diversification of investment

We have been analysing the investment strategies of the UK’s top 350 listed companies’ default DC pension funds every six months since spring 2013, with this being our fifth edition of the research.

While our initial findings reported little evidence of diversification, this report – our most recent – suggests FTSE firms may have turned a corner. In particular, FTSE 350 firms are reducing their reliance on developed equities, and starting to spread investment more evenly across different asset classes.

Allocation to developed equities now averages 71%, compared to 79% two years ago, reflecting a trend to rebalancing asset weighting since 2013.

However, FTSE 100 firms stand slightly further along the diversification path than their 250 counterparts, with average weighting to developed equities of 69%, compared to 73% among FTSE 250 firms, although across the board significant improvements have been made. 

Over the last twelve months, the move away from developed equities has allowed a significantly heavier weighting towards fixed income asset classes, with 29% of FTSE firms having some weighting to this asset class, compared to just 3% a year ago.

Last year proved to be a seminal time for the pensions industry, with the pension freedoms announced in the 2014 Budget allowing retirees more freedom over their pension funds than ever before. In March, the Chancellor turned his attention to those pensioners who had already invested in an annuity – proposing a future framework allowing them to sell these on if desired.

With the Conservatives winning a narrow majority in the recent General Election, and David Cameron returning to Downing St, the pension freedoms will now become entrenched into statute, and further changes will likely follow.

Meanwhile, auto-enrolment has massively boosted pension scheme membership, and over 5.2 million employees now have access to a company pension. This means investment strategy is relevant to more of the population than ever before, and is under greater scrutiny as a result.
We believe trustees have a duty to make sure the investments they control are spread across a wide range of assets, offering greater returns and better protection from risk, while keeping pricing points competitive.

A pattern of diversification has been set in motion, but plenty of room remains for further improvement.

Read the full report

16 pages | 257 kb

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