UK - While 75% of FTSE 100 companies now offer more than five investment options in their defined contribution plans, just 50% of DC members know whether their pension account is invested appropriately.
These findings, highlighted in a Watson Wyatt survey, are coupled with the discovery that more than half of DC plan members have never changed their investment fund choices.
Furthermore, the research found that despite the increase in investment choice, 62% of members still opted for the default investment route.
Kevin Carter (pictured), European head of investment consulting at Watson Wyatt, said: “This trend of increasing investment fund choice is positive. However, it should be remembered that excessive choice can lead to members making wrong fund choices and unintentionally taking on inappropriate risk and cost. Increasing choice does not necessarily mean improving choice.”
According to the research, the average number of investment funds offered by occupational DC plans is now between six and ten, increasing to between 11 and 20 in group personal pension and stakeholder schemes.
It also found that 57% of plans now offered the choice of more than one fund manager within the same plan.
On the back of the findings, Watson Wyatt have argued that the increase in investment choice should be balanced with risk reduction gained though diversification.
They said the probability of a negative return is reduced by 26% by the introduction of asset diversity into a DC portfolio, by means of a typical UK diversified DC strategy.
The research was conducted among 97 FTSE 100 companies and 32 other UK companies which make up Watson Wyatt’s Pension Research Forum.
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