In the accumulation - or growth - phase of member saving (that is, before any lifestyling):
• The strongest performer over the year returned 23.3%
• The weakest performer returned 8.9%
• The gap between the highest and lowest performers was 14.4% - greater than the 9.7% gap in 2023.
In the decumulation - or retirement - phase of member saving:
• The joint strongest performers returned 8.8%
• The weakest performer returned 3.6%
• The gap between the highest and lowest performers was 5.3% - lower than 8.1% in 2023.
What has driven this?
• Providers who invested more in equity benefitted, particularly those who have reduced their bias to the UK market (+9% in 2024, Source: FTSE) in favour of the US (+21%, Source: FTSE).
• Credit underperformed equity in 2024. However, providers who made the move to shorter-dated credit and riskier credit (e.g. high yield debt) were rewarded over 2024.
• Currency hedging had a relatively small impact on 2024 returns, providing some welcome relief for currency hedgers. However, this masks significant currency volatility, which has continued into 2025.
What are the impacts on members/ savers?
• While the gap between the strongest and weakest performances may set alarm bells ringing for some, all providers outperformed a typical inflation-plus target for the growth phase (i.e. CPI inflation + 4% p.a.) in 2024 – with this only falling slightly to 90% in the retirement phase (measured against CPI inflation + 2% p.a.).
• Of course, it's important to assess DC investment strategies over the long-term where possible – after all, members will be invested for 40+ years. Over 5 years, only c. 60% of providers achieved a typical inflation-plus target in the growth phase… and no provider has achieved the retirement phase target.
• Now that inflation has fallen back closer to target, BW will be keeping a close eye on long-term performance to see how long it takes providers to catch up.
Are providers really all that different?
• Research BW published in 2024 revealed signs of herding in the growth phase, reflecting a growing consensus between providers on the right strategic asset allocation. As a result, it was surprising to see a bigger difference between the strongest and weakest performers in the growth phase this year.
• This is because, despite signs of herding in the asset classes used, there remain significant differences in style (e.g. regional exposures, use of factor-based investments, and more) when you drill down into the detail. With increasing sophistication through active management and private markets, it’s never been more important for trustees and companies to understand what sets their provider apart from their peers.
What should trustees and sponsors do if their provider isn’t cutting the mustard?
Hugo Gravell, Principal at Barnett Waddingham, comments: “As investment strategies become more sophisticated, it’s crucial for trustees and sponsors to ensure their governance frameworks evolve to assess value effectively.
“While it’s natural to focus on leaderboards, sometimes the best course of action is to stay the course rather than react hastily. Here, it's important to take a structured approach: first, focus on outcomes – ensuring performance aligns with inflation and member needs. Second, test whether the strategy is truly right for members by assessing risk profiles and asset allocation.
“Finally, ensure any newfound complexity adds real value, especially as only 18% of providers outperformed a fully passive version of their strategy in 2024's growth phase, and just 27% at retirement. Understanding performance drivers is getting harder and will be key to making informed, forward-looking strategic decisions."
Methodology
BW’s analysis covers 22 default arrangements governed by DC workplace pension providers in the UK, with performance data as of 31st December 2024. These providers have more than £500bn of assets, and over 43 million members between them.
|
