A Hymans Robertson survey has revealed that 42% of defined contribution (DC) Trustees believe that DC investment strategies lack the sophistication of those used in defined benefit (DB). Half of those (50%) also agreed that it will take at least 10 years for them to catch up, with the majority (40%) saying this would never happen*.

The survey, commissioned by the independent pensions and benefits consultancy, also found that trustees of larger schemes were generally more optimistic about DC’s ability to catch up. Nearly three-quarters (43%) of Trustees managing schemes with assets of less than £100 million believed that DC would never be as sophisticated as DB. While over a third (37%) of Trustees for larger schemes (assets over £100 million) felt that this could happen within the next five years**. 

Raj Shah, Head of DC Investment at Hymans Robertson commented on the results:

“It’s difficult to ignore how much the DC investment landscape has evolved in the three years since pension freedoms were introduced and the results of our research make it clear that DC strategies fall behind DB in terms of sophistication.

“The sheer scale of assets enjoyed by DB schemes provides them with greater scope for sophistication and innovation, so much so that even the largest DC trust schemes that exist today would struggle to enter into the same investments. Despite this, I wasn’t surprised to see greater optimism amongst those Trustees managing larger DC schemes than those working with smaller schemes. Schemes with less than £100m in assets are likely to struggle adopting more sophisticated strategies as they will be unable to receive the benefits of scale enjoyed by those with larger pools of assets.

“Thankfully, the DC evolution is not showing any signs of slowing down and I can certainly see a light at the end of the tunnel. As long as the scale of assets in DC continues to grow and access to alternative asset classes widens, then sophistication in DC investment will improve. While price and contribution to risk-adjusted return will still be the major factors to consider when selecting an asset class, it is refreshing to see that DC product development is steadily gaining traction.”

Notes to editors:

Based on a 2018 Opinium survey of 100 DC Trustees

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