The report, which examines the investment strategy and performance of nine major defaults, found the offerings of Royal London, Standard Life, Fidelity, Aviva and Legal & General were generally more diversified than their peers.
The average allocation to equities amongst the defaults in the sample was around 66 per cent, with Scottish Widows’ default having the highest exposure at 84 per cent, while Legal & General and Standard Life’s both have the lowest exposure, at 44 per cent of their total asset allocation.
Legal & General and Fidelity have the highest allocation to fixed income, with 47 per cent and 37 per cent respectively, while Royal London has no exposure at all to the asset class. The average allocation to fixed income is 27 per cent.
Over the last three years, the Zurich fund was the best performer, delivering annualised returns of 7.3 per cent, although it carried a relatively higher level of risk, at 9.5 per cent. In the same period, Standard Life produced the worst return – 3.5 per cent a year, but it does exhibit a consistently lower level of risk, at 5.3 per cent, than all the default funds.
The timing of when the growth phase period ends, with assets moving gradually to lower risk assets, also differs significantly amongst all the providers.
Legal & General’s fund was the best performer for investors five years from retirement, delivering an annualised return of 6.6 per cent over the last three years, although at a relatively higher level of risk of 7.2 per cent, when compared to the other defaults. Standard Life produced the worst return, at 2.7 per cent annualised, relative to the risk taken of 5 per cent. In terms of risk-adjusted performance, Legal & General has the highest Information Ratio, at 0.40.
Legal & General was the best performer at retirement, achieving returns of 6.6 per cent, although at a relatively higher level of risk of 7.2 per cent when compared to the other defaults. Aviva’s My Future default produced the worst return, 1 per cent, relative to the risk taken of 4 per cent.
The report looked at the defaults of Aegon, Aviva Investors, Fidelity, Friends Life, Legal & General, Royal London, Scottish Widows, Standard Life and Zurich.
Punter Southall Aspire chief executive Steve Butler says:“Over the last nine months the global asset markets have changed, with high positive returns much harder to come by and volatility rising. Members need a solid saving and investing path, and this means selecting strategies with good fund diversification and the ‘wise’ use of active management to enhance returns and achieve a financially secure retirement.
“This is our third report into DC default pension funds and again, we’re seeing wide variations, which may surprise some employers. Employers have a duty to actively manage their funds and regularly check their performance as they could be unwittingly putting their employees’ pension pots in jeopardy.
“Default doesn’t mean standard. With so many variations employers need to examine all aspects of their DC default fund carefully to understand exactly what they are getting and how their funds are performing.
“We urge employers to do more research, ask more questions and get advice from experts before they make investment decisions. They must also review the management and performance of their funds regularly to ensure that at retirement, their employees get the best pension and retirement possible.”