Administration October 12, 2009

U.K. Providers Increasingly Going with Target Return Defaults

October 12, 2009 (PLANSPONSOR.com) - A new survey of U.K. fund providers shows the more often used DC default solution is based on a target return and a dynamic asset allocation, similar to the asset allocated fund model now so prominent in the U.S.
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A news release about the 2009 PensionDCisions DC Default Provider survey found providers are increasingly recommending target return strategies (absolute targets, as well as inflation or interest rate relative targets), with 44% of survey respondents backing that approach in the latest poll, up from 29% in 2008. A declining share of providers recommends benchmark-relative strategies.

The news release said providers advocate a much wider range of management styles compared to solutions currently implemented in DC schemes, where 71% of defaults have fixed asset allocations expressed in passively managed funds.

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“This is in stark contrast with the practices currently in place in large DC plans where almost all set a pre-determined asset-class benchmark,” commented Graham Mannion , managing director, in the news release. The poll covered 16 U.K. fund providers.

According to the announcement,31% of respondents recommend default solutions with fixed asset allocations and passively managed funds. The remaining 69% employ varying elements of dynamic (tactical) asset allocation and/or active fund management.

The range of potential outcomes delivered to members has widened significantly. Given the wide range of views from respondents on what represents an appropriate objective and how to reach that objective, coupled with the volatile market environment and the trend towards dynamic asset allocation, the performance differential between best and worst performing solutions (annualized over three years to June 30 2009) has increased to 21.6%, from 4.1% in 2008, according to the news release.

More information is available here . 

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