Nine-tenths of DC members opting for ‘ineffective’ default funds

The consulting firm estimates DC assets will overtake defined benefit assets in 2014, however, it said most of the money is not working effectively.

Global head of investment consulting Roger Urwin said: "The growth of DC assets around the world is inexorable and we estimate they will probably overtake defined benefit assets in the year 2014 if the present rate of growth continues.

"Unfortunately the majority of these assets are not effective in their investment design, particularly with respect to default funds.

"This is one of the biggest failings in the pensions industry today, because if unchecked will jeopardise literally millions of people’s retirement income with the dramatic negative impact that implies for society as a whole."

Urwin added: "Default options can have a number of benefits if well designed as they can provide simple answers to a complex decision.

"However, if poorly designed and poorly communicated, individuals can find themselves with an entirely unsuitable asset allocation that reduces the chances of benefiting from investment returns, which are a crucial part of any DC fund, particularly in the early stages."

This comes as a Watson Wyatt survey revealed that DC funds now represented 34pc of all pension scheme assets in the UK (PP, April 17.