More than 10 years on from the introduction of automatic enrolment, defined contribution (DC) pension schemes are continuing to grow in popularity, but Benefits Expert’s Guide to DC Pensions 2023 reveals staggering differences in schemes’ performance.
The best-performing provider was National Pension Trust, while Now: Pensions fared the worst. In fact, over a five-year period a £10,000 investment rose by an average of £2,690 while National Pension Trust delivered a £5,860 growth. But the value of a Now: Pensions pot grew by just £228 – a real-terms loss.
The figures show that the average DC pension pot fell in value by more than 8% in the year to 30 September 2022.
Nest has the biggest number of active members, with more than 4.5 million employees enrolled, followed by Legal & General and The People’s Pensions, which have 2.1 million and 1.8 million active members respectively.
Investment performance matters, and even a one percentage point difference can make a huge difference in the growth of the pension pot. The best investment performance pension provider for older workers was found to be Creative Pension Trust Strategic Pensions Investment Approach, while National Pension Trust was the best for younger savers.
The worst investment performers were found to be Aegon BlackRock LifePath Flexi and Now: Pensions for older and younger savers respectively.
The gap in pension pot size between men and women is 56% at retirement, while the gap in retirement income is 51.4% between male while British and female BAME retirees.
More than half (55%) of employees do not know if their pension fund is invested responsibly.
Policymakers are keen to see consolidation of own trust into master trusts or GPPs, but so far this drive has been partially successful. The Pensions Regulator is expected to continue with this agenda.
With 10 million new workers now enrolled, the percentage of employees saving in a workplace pension rose from 46.5% in 2012 to 79.4% in 2021. This is set to increase in the coming years, with a large proportion of people relying on them for their retirement income.
DC schemes have almost completely replaced most of the final salary defined benefit schemes, taking a large part of the risk away from employers and onto employees themselves. Unlike DB schemes, they are determined by the amount paid into the pot. However, it is not enough to select a provider and hope for the best – employers need to understand whether their workplace pension scheme is on track to support staff into a comfortable retirement.
Benefits Expert’s Guide to DC Pensions 2023 draws on data from our sister organisation, Corporate Adviser Intelligence, to explore the current state of the sector.
DC pensions are available in three forms – own-trust for single-employer trusts, master trusts and group personal pensions (GPPs).
The 57-page report benchmarks the propositions, market share and performance of provider schemes across the DC pensions sector, ranking them by number of employees and employers using their services, year-on-year changes in market share and proposition functionality.