Closing 46% investment performance gap critical for pension savers

The latest government reforms on Value for Members will shine a spotlight on the best and worst DC investment performance helping savers and prompting schemes to review their strategy and/or DC providers, according to Damon Hopkins, Head of DC Workplace Savings at leading independent consultancy Broadstone.

The DWP paper shows that over a five-year period, there can be as much as 46% difference between the highest and lowest performing pension schemes. 

This is unsurprising and consistent with our ongoing research of the DC provider market but is, again, a stark reminder of how important investment performance is in the context of retirement outcomes, particularly in the current economic environment where disposable incomes are under strain and additional contributions will be difficult for most savers.

While the VFM framework is still evolving, it aims to assess scheme performance across investment performance, costs and charges and quality of services. As an illustration of its impact, if schemes performing 3% or worse below the industry average were either consolidated or improved their performance to match the industry average, the average investment growth across the industry would increase by around 0.3%.

Damon Hopkins said: “Despite best efforts to increase engagement and understanding of retirement savings, we simply can’t expect the average saver to be an expert in investments. Therefore, it is incumbent on the industry to ensure the default strategies that the majority of savers are invested in produce value for money through fair fees, strong performance and ultimately support adequate retirement savings.

“With significant variation in the design of investment strategies, it is inevitable they will produce variableinvestment performance. These proactive measures aim to mitigate the consumer harm from this differential by either encouraging consolidation or prompting schemes to review DC investment strategies and/or providers.”