Diversified asset allocation considered as UK's popular DC pension funds

Asset managers foresee no let-up in the commanding position of diversified growth funds as the most popular default fund for UK defined contribution pension default funds

March 11, 2014 7:54 IST | India Infoline News Service
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." 
European Defined Contribution Markets 2013 also:
  • Asks asset managers which distribution channel they favor for decumulation products Fund managers say consultants will be the sales channel with the greatest potential for distributing their decumulation products over the coming three to five years. Arrangements with life insurance companies also rank high, whereas the sales channel of financial advisors, wealth managers, and banking networks is seen as less interesting.
  • Explores managers' plans to develop cross-border products Multinational employers want to use premium pension institutions (PPI) structures to pool their pension assets across borders-they just do not want to pay for them. Establishing cross-border pooling vehicles is too expensive for many asset managers. But the DC industry insists that having fewer, larger asset pools is an ideal way to drive efficiencies, and the PPI structure is ready and waiting to join in this process. 

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