Category: Pensions

UK's Most Popular DC Pension Funds

UK’s Most Popular DC Pension Funds


The dominance of diversified asset allocation strategies in the UK defined contribution pension default fund landscape has been underlined by an exclusive finding in Cerulli Associates’ institutional report, European Defined Contribution Markets 2013: Winning With a Targeted Approach.

In the survey of European asset managers conducted for this report, two-thirds (66.7%) of managers expected diversified growth/asset allocation strategies to be the most popular choice, followed by lifestyle strategies (20%).

Target-date funds, which have been launched in Europe by some US-headquartered investment managers, were mentioned by fewer asset managers (6.7%), but interest in this sector is expected to grow. Blended funds, with a significant portion of active and passive approaches, were also mentioned.

“Getting one’s default fund strategy right is crucial for managers in the UK and Continental markets, because default funds take in the bulk of DC pension contributions,” said David Walker, associate director at Cerulli Associates in London.

Laura D’Ippolito, a senior analyst at the firm, added: “Setting up a target-date strategy in the United Kingdom is much more complex than simply bringing over a successful strategy from the United States.” 

Retirees to Seek Higher Risk Investments

Retirees to Seek Higher Risk Investments

The CEO of one of the world’s largest independent financial advisory organisations expects a growing number of retirees to consider “higher risk-higher return investments” as a direct result of the Bank of England’s February statement that interest rates are likely to remain low until the end of the decade.

The comments from Nigel Green, founder and chief executive of deVere Group, follow Mark Carney’s assertion last month that rates will not rise from their historic lows for at least another year – and when they do rise, the increases are to be “gradual” and “limited”. The BoE governor also hinted that rates are expected to remain low – staying between 2 and 3 per cent – until around 2020.

Mr Green comments: “The rock bottom interest rates are eroding people’s savings, which is reducing their spending power and limiting their financial options.

“Therefore, the Bank’s raising of the prospect that interest rates are to stay low until the end of the decade is another hammer blow for retirees, and others living off a fixed income.

“Tired of their cash holdings making them, in effect, poorer over time, I fully expect more and more retirees will turn traditional investment thinking on its head. An increasing number will, I believe, consider higher risk-higher return investment opportunities as part of a well-diversified portfolio in order to be able to fund the retirement they want to enjoy.

He adds: “Traditionally, the mindset has been that as we get older we should reduce our exposure to risk and, for example, increase holdings of cash and bonds. However, in today’s world this prudent intention could have serious unintended consequences.

“Since Mr Carney’s unveiling of his forward guidance policy last summer, we have found there’s been a steady growth in the number of retired clients seeking to increase their holdings of higher risk-higher return investments, which could potentially enable them to maintain or enhance their spending power and lifestyles in retirement. This trend’s momentum is, I believe, likely to build following the BoE governor’s latest longer-term forecast on interest rates.”

40% of Landlords Relying on Property

40% of Landlords Relying on Property

A survey of independent landlords has shown over 40 per cent are putting their trust wholly in property as their means for pension provisions.

The survey of 879 property investors shows 42.4 per cent, with a further 49 percent using it as a major part of their income for their later years.

The findings by the Property Investors Network (PIN), comes less than a fortnight after the Financial Conduct Authority said millions of pensioners are getting a poor deal from the annuity market.

“We have a situation now where there is an endemic loss of faith amongst traditional financial institutions, and the public believe that good old bricks and mortar remain the best way forward,” said Simon Zutshi, founder of PIN.

Mr Zutshi, whose organisation hosts 41 property networking meetings each month across the UK, said the consensus amongst those involved in property investment is that it should be allowed the tax benefits given to other types of pension provision.

“The tales we’ve heard in recent years of highly paid bankers being utterly reckless with the futures of many, plus other tales of woe by those looking after our money, shows that the public should be entrusted with more control over their futures and Self-Invested Personal Pensions (SIPP) and should allow residential property as part of a solid portfolio.”

The FCA said in its recent report that millions of pensioners were getting a raw deal due to poor annuities, with the regulator also highly critical of price comparison websites used by some people to buy an annuity, saying that every one of the 13 sites it looked at was guilty of poor practices.

An annuity provides a regular income from the pot of money that a pension plan holder has accumulated during their working life. At retirement, an estimated 60% of people simply take the deal offered by their pension provider, even though they are entitled to shop around and make use of the so-called open market option.

“State pensions are on the decline and private pensions are under invested in,” added Mr Zutshi. “Yet the performance of property historically provides enough evidence to provide a compelling argument as a means for pension provision. We hope these findings will add to the debate.”

Calculus Invests in Digital Admin Firm

Calculus Invests in Digital Admin Firm

Private equity fund manager Calculus Capital has invested £2m – via its EIS Fund – into a digital administration services provider that is helping to deliver a low-cost revolution in the pensions, savings and investment industries.

Through its proprietary technology platform, Quai provides white-label administration services for personal savings products at a fraction of the costs currently borne by traditional providers.

Quai was established in 2011 by a team of former Legal and General, Brewin Dolphin and BNP Paribas Securities Services executives. The founders recognised that legislative and regulatory changes such as auto-enrolment, the Retail Distribution Review and the Solvency II Directive would fundamentally change the way wealth managers, insurers, banks and other pension and investment companies provide savings products to individuals.

Mass distribution of individual savings plans, combined with the elimination of commission payments are forcing providers to offer high-volume, low-margin saving plans – a process that is being further accelerated by the proposed Government cap on pension scheme costs.

However, the legacy systems of providers are increasingly unfit for the demands of this rapidly evolving landscape, driving a need for more advanced technology to reduce administrative costs, increase capacity and improve efficiency.

Susan McDonald, chairman of Calculus Capital, said: “Providers are having to manage more pension schemes, savings and investment products at a lower unit cost, whilst struggling with inefficient legacy systems and processes. Established operators must choose whether to build bespoke in-house systems to administer mass-market products – which is likely to be extremely expensive and time-consuming – or to outsource to a service supplier with a fully developed platform. Quai’s platform is regarded as one of the most advanced and cost-effective third-party solutions and is therefore generating a great deal of interest from major financial institutions.”

Quai’s outsourced service is built on a proprietary technology platform incorporating a full service portfolio management system. It allows banks, insurance, pension and investment businesses to efficiently administer extremely high volumes of savings plans through automated systems, straight-through processing, online functionality and multi-currency individual and model portfolio management services.

Ms McDonald adds: “Our investment should provide Quai with the breakthrough capital it needs to convert current levels of interest in its platform into signed contracts. The funding will support Quai in the completion of several deals with key UK financial institution that are keen to benefit from the company’s services as soon as possible.

“It also provides extra resources so the company can continue to develop and enhance its systems and focus more efforts on business development.”

Tony Webb, Quai managing director, adds: “Calculus’s investment comes at a crucial stage in our growth and development. There is a huge need for our services and technology platform; investment and pension administration systems are effectively creaking under the increased demands placed on them by the need to roll out mass-market products. Unless they take action this strain on their back-office systems is likely to result in potentially costly and damaging problems occurring. With our focus on high efficiency systems, we are able to resolve these problems and reduce costs to our clients and their end customers.”

One in Four Not Ready to Retire

One in Four Not Ready to Retire

New research from Prudential has highlighted how attitudes to retirement are changing, with nearly one in four (23 per cent) people planning to retire this year saying they don’t feel ready to stop working altogether.

Meanwhile 13 per cent of those who had been scheduled to retire have chosen to delay their plans because they don’t want to give up work just yet.

The research into the ‘Class of 2014’ is Prudential’s seventh annual study tracking the future plans and aspirations of people who plan to become new retirees this year. More than half (54 per cent) will consider working past the State Pension Age in an attempt to make their retirement more financially comfortable.

Around a quarter (23 per cent) would consider working full-time while 31 per cent would weigh up the idea of working on part-time. Ideally they would prefer to continue in their current job with reduced hours, with 32 per cent of those considering working past the State Pension Age suggesting that option is the one that would suit them best.

However, this year’s results highlight positive attitudes to retirement despite ongoing financial pressures. The main motivation for 57 per cent of this year’s retirees who would consider continuing to work past the traditional retirement age is to keep mentally and physically fit. More than a third (35 per cent) also cite the ability to boost retirement savings as a consideration, while 40 per cent simply enjoy working and 39 per cent don’t feel ready to retire just yet.

The study also found that the ‘Class of 2014’ are expecting a busy and enjoyable retirement – 53 per cent of those planning to retire this year intend to do more exercise, 37 per cent will be socialising more, while 36 per cent plan to take up voluntary or charity work. Around 29 per cent say they have no worries or concerns and are really looking forward to their retirement.

Stan Russell, a retirement income expert at Prudential, said: “For many people retirement is now a gradual process rather than a watershed where you simply stop working one day and become retired the next, and that is reflected in the change in attitudes shown by our research.

“However, there is no one size fits all solution to retirement and many people will be looking forward to leaving work as soon as they can. What is important is that people plan ahead for retirement and do as much as possible to ensure a comfortable retirement by consulting a financial adviser or retirement specialist well ahead of their planned retirement date.

“Working past traditional retirement ages is not solely driven by financial pressures and the research shows growing numbers of people wanting to carry on working because they enjoy it and because it keeps them stimulated mentally and physically. Increased life expectancy and improvements in general health are changing how we think about retirement.”