A five-year review by Isio has shown a material rise in growth asset allocations across both accumulation and retirement phases in the UK’s DC default funds.
The review found that, over the past five years, providers have steadily increased allocations to growth assets within off-the-shelf default strategies. Higher equity exposures across global, regional and small cap markets have also become more common, alongside a gradual introduction of private market investments.
Five years ago, many providers held between 10 per cent and 30 per cent in equities as members approached retirement, with significant allocations to cash and traditional bonds reflecting an annuity-focused model. Today, average equity exposure in retirement strategies has increased to around 30 per cent, signalling a stronger belief in the asset class maintaining growth potential as members transition into drawdown.
Even as many prominent global asset managers withdraw from net zero aspirations, the Isio report found that ESG integration has become more embedded within default design, with many strategies enhancing sustainability characteristics alongside targeting competitive risk-adjusted returns.
Mark Powley, head of DC master trust research at Isio, says: “Providers have responded to evidence around member behaviour and evolving retirement patterns, increasing equity exposure where appropriate and broadening diversification across credit and private markets.
“The result is a more balanced approach that seeks to support long-term sustainability as well as short-term stability for DC savers.”
At the same time, diversification within fixed income has found to have broadened. In addition, greater use of multi-asset and securitised credit, alongside a shift toward shorter-dated bonds, was seen to reflect efforts to manage interest-rate sensitivity while accessing wider sources of yield. Absolute return bond strategies were found to have largely been removed where they have not met expectations.