Majority of FTSE 100 DC schemes choose diversified growth funds

Seventy of the FTSE 100 companies now offer diversified growth funds (DGFs) as part of the fund range in their defined contribution (DC) pension schemes, according to research by Towers Watson.

The research, FTSE 100 defined contribution pension scheme 2012 survey, also found that nearly all (92%) FTSE 100 pension schemes operate a default investment strategy, up 10% from last year, with the majority of these being lifestyle strategies that include DGFs.

The research also found:

  • More than half of FTSE 100 DC schemes have more than 90% of members invested in the default option
  • Almost 70% of companies that already use auto-enrolment have more than 80% of members in the default option.

Chris Smith, senior investment consultant at Towers Watson, said: “Getting the default investment option right has become critical for pension funds because more people are investing in them than ever before.

“To achieve this, many fiduciaries have segmented their memberships by individual risk profile, through a risk-assessment exercise, in order to tailor the default option, using DGFs where suitable.

“One of the requirements of auto-enrolment is that qualifying schemes are required to nominate a default investment option, which is structured according to the Department of Work and Pensions’ guidelines and governed by Investment Governance Group (IGG) principles.

“While it is disappointing that contract-based schemes continue to play catch-up, the fact is that the significant majority of trust-based DC schemes now comply with the IGG principles.

“This suggests that employers and trustees have recognised that good governance is at the heart of a well-run scheme and important for achieving good member outcomes.”

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