FTSE pension schemes not diversifying

Over the past 12 months, 85% of a selection of FTSE companies have not made any significant changes to the asset allocation of their defined contribution (DC) pension schemes, according to research by Schroders.

Its second FTSE DC report, which studied the pension investment allocations of 16 FTSE 100 companies and nine FTSE 250 companies, found that, few of the 15% that have made significant investment decisions, have diversified. 

Instead, the overwhelming majority of schemes continue to implement an approach that is highly equity dependent. 

The research, which looked at the overall annual comparison between 2012 and 2013, also found:

  • Typical asset allocation to equities of FTSE 350 companies remains at 84%. 
  • Allocation in UK equities has fallen by nearly 2%, to 31%, and global equity holdings have risen by almost 2%, to 48%. 
  • Fixed income weighting has reduced to 8%, down from 9.2% in 2012. 
  • There has been no change in alternatives with the average asset allocation at 8% over the past 12 months.

Stephen Bowles (pictured), head of defined contribution at Schroders, said: “Our FTSE DC research clearly illustrates that, while some schemes certainly employ elements of diversification, few do so effectively.  

“Instead, the overwhelming majority of schemes continue to implement an approach that is highly equity dependent. It has been disappointing to see that there has been no change in the allocation to alternatives over the past 12 months, a rather under-utilised asset class.

“What is perhaps most interesting is that it is only in cases where a scheme has either replaced or appointed additional fund managers that progressive changes have been made to diversify. This represents 12% of all schemes.

“This is particularly significant because, through their differing investment strategies, multiple managers add an additional element of diversity alongside allocations. It will be interesting to see if this is a trend that continues to develop in the months ahead.”