UK - The number of fund managers offering defined contribution products is set to shrink as firms review their "unprofitable" businesses.
Industry sources claim fund managers are looking at the viability of their DC businesses due to falling markets and a lack of take-up.
Gartmore Investment Management and Merrill Lynch Investment Managers are reviewing their DC operations while Barclays Global Investors merged its DC operations with its institutional arm as part of a cost-saving exercise earlier this year.
One senior fund manager said: “Everybody is looking at it. DC was held up as the salvation of the pensions industry and if you believed that five years ago, you would have built up your business in expectation of significant asset growth in a very short space of time.
“That simply has not happened – even with the move from DB. It’s been slow and in this climate it is entirely consistent that everybody in the DC market has been looking at their offerings. DC is not a sustainable business for anybody for a number of years.”
Aon Consulting principal Chris Erwin agreed and said that as DC schemes were set up for new entrants only, it rendered them “unprofitable from the start”. Their profitability depended on a rising stock market and people increasing their contributions.
But Erwin said: “Two things have happened which has proved those projections to be unrealistic. The first is the fall in the market. The assets, which were tiny, have not been growing.
“Secondly, companies have been cutting back on staff. There will be a contraction in the number of reasonable suppliers.”
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