UK - Watson Wyatt has proposed a radical shift in the asset allocation for UK defined contribution benefit (DC) schemes, including a far greater emphasis on uncorrelated alternatives such as infrastructure, private equity and property.
The firm’s ‘thinking ahead group’ has described the typical current DC investment design as “not fit for purpose” and expressed concern that current schemes will not deliver adequate retirement cover for future pensioners.
Crispin Lace, senior investment consultants at Watson Wyatt, said the firm was already advising clients in the UK to adopt the new strategy, though he admitted adoption would be a “step by step process”
Lace commented: “Simply investing in different countries no longer diversifies risk and clients expect more ”
According to Watson Wyatt a current typical UK diversified DC strategy was split mainly between domestic and global equities, with some allocation to UK bonds, overseas bonds and cash.
The new ‘real diversity strategy’ would invest across 14 asset classes in order to reduce volatility.
Meanwhile Analysis of the data gathered from Watson Wyatt’s latest pension administration cost survey, which covers more than 250 occupational pension schemes with a total membership of 5.7 million, found the average cost of running a pension scheme remained at 0.2 per cent of funds, for schemes with more than £5 billion invested.
The First Report of the Pension Commission in 2003 found that large occupational schemes can have explicit costs as low as 0.2 per cent of funds. The Pension Commission proposed establishing a National Pension Savings Scheme with a target annual management charge of 0.3 per cent of funds.
Allan Course, head of administration consulting at Watson Wyatt, said: “Given all the extra administrative burdens on pension schemes, it is good to see that costs can remain so low.”
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