Pension schemes representing nine in 10 DC savers invest in productive assets, new data shows
Almost nine in 10 defined contribution (DC) savers are in schemes which invest in at least one productive asset class, The Pensions Regulator’s (TPR) latest research shows.
TPR’s survey data shows that 45% of defined benefit (DB) schemes, 57% of large DC schemes, and 72% of DC master trusts hold some productive assets, such as infrastructure, private equity or renewables.
The research also shows that large-scale DB and DC schemes are more aware and engaged with their governance compared with smaller schemes.
This may put them in a stronger position to make informed decisions around diversified investments, cyber security and environmental, social and governance.
The findings also suggest smaller schemes are at risk of not performing as well against TPR’s expectations on investment governance and governance more broadly.
Nausicaa Delfas, TPR’s Chief Executive, said: "We believe sound investment in diverse assets could improve outcomes for savers and generate growth for the UK economy. The two do not have to be in conflict.
"We want to help all schemes to be able to consider a full range of investment options, either through ensuring strong governance or by encouraging them to consolidate."
The surveys show that while many larger DC schemes hold productive assets, such as infrastructure, private equity or renewables, a sizeable proportion of small (57%) and micro schemes (70%) did not know if their scheme held assets in these classes. This lack of understanding could indicate poor governance standards.
That is why TPR is continues to tackle poor governance in small schemes by:
• probing how many schemes meet their legal duty to carry out a detailed Value for Members assessment – this has seen nearly one in five schemes engaged with concluding they do not offer value and winding up and fines issued for non-compliance
• developing a Value for Money framework in partnership with Department for Work and Pensions and the Financial Conduct Authority
• introducing a more proactive supervisory approach to improve the quality of trusteeship, with a greater emphasis on providing value
Investment diversification
TPR has outlined key areas where diversification in pension scheme assets to manage risk is important:
• diversifying assets helps mitigate risk by ensuring a scheme is not overly reliant on the performance of a single asset class or investment
• by investing in a variety of assets, schemes can achieve more stable and predictable returns over time
• a portfolio that includes growth assets could lead to higher returns while still balanced by more stable, lower-risk investments
TPR has called on trustees to work with investment advisers to develop a well-diversified investment strategy that aligns with the scheme’s risk tolerance and long-term goals.
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