Mercer says the fund uses its best thinking for defined benefit schemes giving defined contribution members the chance to access asset classes and investment strategies not usually open to them. Mercer says the fund has been designed to be DC friendly in terms of liquidity and costs with allocations to assets such as emerging markets, both debt and equities, low-volatility equities, corporate bonds, commodities and property.
The fund’s asset allocation will be actively managed by Mercer’s in-house experts on an ongoing basis, whereas the individual building blocks will consist predominately of passive funds.
The fund will be available through Mercer’s platform arrangements with Friends Life, Standard Life and Zurich, and will have an AMC of around 0.35 per cent for the investment-only option. Mercer says the fund could represent around 50 per cent of the overall allocation of a default fund, with passives making up the balance.
The underlying asset classes in the fund will also be subject to Mercer’s assumptions around DC investments and the fund will remain flexible to accommodate new investment opportunities.
The fund’s objective is to outperform three month LIBOR by 3.5 per cent a year over a five year period with volatility of 10 to 12 per cent.
Brian Henderson, European head of defined contribution pensions in Mercer’s investment consulting business, says: “One of the greatest challenges facing many DC schemes is a lack of member understanding and engagement, particularly around investment choices. It is widely known that the majority of members will end up choosing the default option, and engagement is important to help members invest wisely and favourably influence their outcome at retirement. However, we think it is as important to ensure that members are offered a well-diversified default option that has member outcomes firmly rooted within its design.”
Emma Douglas, head of Mercer Workplace Savings says: “Through good design and expert management we aim to give DC scheme members an opportunity to achieve better outcomes in retirement. There is no need to spend money on expensive underlying funds – the key is how you put the portfolio together and how it can influence the end result at retirement.”