DB plans increasingly use delegated investment providers

More than one-third (36%) of respondents have appointed a delegated investment provider for their defined benefit (DB) pension scheme, up from 18% in 2011, according to research by Aon Hewitt.

Its Delegated investment survey 2013, which surveyed 275 UK DB pension schemes representing around £130 billion of assets, found that this increase has been driven by a combination of factors putting pressure on trustees and employers alike, including rising scheme deficits, market volatility, increasing investment complexity and the growing number of scheme closures to new entrants and future accrual.

Sion Cole (pictured), partner and head of client solutions at Aon Hewitt’s delegated consulting business, said: “Ongoing market uncertainty and volatile returns in recent years have led pension scheme trustees to consider a wider range of asset classes as they seek both to smooth funding level volatility without sacrificing returns and to align their assets more closely with their liabilities.

“This trend towards increased diversification has seen a marked increase in the number of schemes opting to delegate to expert providers the day-to-day investment decisions and management of their portfolios.

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“In the last three years, 5% of all the DB schemes in the UK have moved to a fiduciary management approach. This is a remarkably quick uptake within an industry that is typically much slower to move.

“We believe this momentum will continue and we expect to see 25% of all UK DB pension schemes committed to delegated investment within the next five years.”