Millions of UK pension savers may not be protected against market downturns

New research compares different Defined Contribution (DC) default pension fund options against their financial outcomes

Millions of UK pension savers invest their savings in funds that might not appropriately protect them against potential market downturns, according to The Future Book: unravelling workplace pensions by the Pensions Policy Institute (PPI).

Commissioned by Columbia Threadneedle Investments,The Future Book is an annual publication that aims to shine a light on the current state of play of UK workplace pensions, the challenges faced by those saving for retirement and what the Defined Contribution (DC) pension landscape may look like in the future.

Now in its third year, it shows that the number of UK pension savers and employers going through automatic enrolment has increased markedly in recent years, reaching 8.3 million savers and close to 700,000 employers in July 2017. In total, there are 12.8 million active scheme members with £373 billion of aggregate assets in DC workplace pensions. The median DC pension pot size at State Pension age stands at around £28,000.

The vast majority of savers invest in their pension scheme’s default fund. At 99.7 per cent, master trusts have the highest proportion of members to do so, followed by 94 per cent for group personal pensions. In most cases, these default funds employ a lifestyle strategy, typically investing heavily in equities before phasing the asset mix into bonds and cash 10 years before retirement.

Exclusively for this year’s edition, the PPI has undertaken research into how fund design affects outcomes for scheme members. It compared lifestyle strategies against other default investment options (low volatility, high risk and diversified growth funds) and assessed their likely financial outcomes at the point of retirement while also testing them for market shocks.

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