Furthermore, 46% are considering adding this as a self-select option, bringing to two-thirds the share of schemes offering ESG as a self-select option.
The research highlights that trust-based schemes are most likely to be considering ESG issues, whereas contract-based arrangements are lagging somewhat behind.
In its fourteenth FTSE DC Pension Scheme Survey, Willis Towers Watson provides the largest and most representative survey of DC pension provision in the UK. This year’s survey reveals that the trend of organisations reviewing their DC pension provision shows no sign of abating.
More than half of schemes (54%) plan to review their default investment approach in the next two years and default investment strategies continue to evolve. In the early stages of the growth phase, equities dominate, with a 65% allocation. Closer to retirement age, 10 years out, this reduces to 40%, but interestingly, at retirement, there is still a 15% allocation to equities. Importantly, fewer than 20% of schemes now target annuity purchase as the default retirement outcome, with two-thirds having replaced that with an income-drawdown or universal target.
Anne Swift, Senior Director, Investments, Willis Towers Watson, said: “With 98% of FTSE350 companies offering Defined Contribution pensions to new entrants, employers are clearly more focussed than ever on reviewing and diversifying the design and delivery of their DC schemes.
“This year’s survey highlights areas in which significant change has occurred, or is being considered, in relation to ESG investment strategies. This is being driven by both the expectation of better investment outcomes and the demand from DC pension members to reflect these factors in their retirement savings.”
Other key findings from the latest FTSE350 DC Survey include:
• 98% of FTSE 350 companies offer DC pensions to new entrants
• Two thirds (66%) of FTSE350 employers have either “hard-closed” their Defined Benefit schemes (45%), or have only ever offered DC (21%)
• FTSE 100 companies’ employer core contributions are up to 7.1% in 2019, from 6.4% in 2018, with FTSE 250 firms seeing a rise to 6.1% from 4.3% in the same time period, as auto enrolment drives companies to review their schemes
• Use of Master Trust arrangements has increased among FTSE100 firms, and nearly a half (48%) of FTSE250 companies plan to review their DC vehicle in the next two years
• Half (54%) of employers have reviewed their contribution levels in the past two years, while a third are planning to do so in the next two years
• Annual management charges have fallen since 2014 (from 37bp to 35bp for FTSE100 and 47bp to 40bp for FTSE250)
• 22% of employers allow members to divert or reallocate their pension to alternative savings options (such as ISAs or investment accounts)
• Trust-based schemes have seen a significant increase in default funds targeting income drawdown at retirement (from 11% in 2017 to 46% in 2019) and a fall in those targeting annuities (from 47% in 2017 to 21% in 2019)
• One in five (21%) of trust-based schemes now facilitate access to a third-party income drawdown vehicle for members at retirement
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