The average growth phase default fund saw a 16.58 per cent pre-charge return in 2021, as markets bounced back from the Covid-19 pandemic, according to data from the Corporate Adviser Master Trust & GPP Report 2022. CLICK TO REQUEST YOUR COPY
Defaults have delivered average returns of 9.36 per cent a year over the last five years, before charges, with Aon’s Managed core retirement pathway delivering 13.4 per cent annualised, compared to a 5.82 per cent annualised return from Standard Life’s more Active Plus III Universal SLP.
A younger saver with £1,000 in the Aon Master Trust Managed Core Retirement Pathway Default would have seen it grow to £1,899 in the five years to 31.12.21, compared to £1,304 in Standard Life’s default. The average default fund would have grown to £1,555.
Standard Life is in the process of moving members into its newer default, Sustainable Multi Asset (SMA) default solution. This process is already underway with £1bn transferred. The bulk of these assets will shift between May and August, with the process being completed in the second half of 2022.
Aon’s Managed Core Retirement Pathway default has recently overtaken its Managed Retirement Pathway default as the fund with the most active members.
The 88-page report found providers’ difference in performance at retirement was even greater, with a 14.51 per centage point difference between the highest return, National Pension Trust on 11.41 per cent, and the lowest, SEI Flexi default (annuity) which fell by 2.8 per cent as it insured against rising costs of annuities. SEI’s annuity option is its greatest default by number of members. Its drawdown option achieved a 10.3 per cent return across 2021.
There was a 9.17 percentage point difference in five-year annualised returns of default funds serving at retirement savers, with National Pension Trust achieving 9.27 per cent before charges in 2021, compared to 0.1 per cent from Hargreaves Lansdown’s 100 per cent cash default strategy. In 2021, National Pension Trust returned pre-retirees 11.71 per cent.
Royal London’s default approach stood out in 2021, achieving a 9.56 per cent return with far lower volatility than the other above sector average providers. Its at-retirement strategy incorporates exposure to commodities and global high yield bonds as well as a 31 per cent equity exposure.
The report also concluded that Legal & General received the most assets in DC bulk transfers, totalling £2.2bn, followed by Mercer Master Trust at £1.25bn, LifeSight at £1bn and Scottish Widows at £878m. L&G also had the biggest number of bulk transfers, totalling 32.
The Shariah HSBC Islamic Global Equity Index is almost universal as a Shariah option, used by virtually all 27 providers in the survey. In 2021 it returned around 27 per cent, while its 5-year annualised return is around 18 per cent, significantly ahead of all default funds.
Corporate Adviser editor John Greenwood says: “The debate over the level of equity and equity-like exposure will continue to evolve, and hindsight will prove whether an all-out aggressive approach is best. But for now, despite the many headwinds facing the global economy, most defaults are sticking with a relatively aggressive approach in the growth phase.
When it comes to the at-retirement performance figures, the different objectives of funds has not surprisingly had a huge influence on results, with a big divergence in performance outcomes. But those overseeing schemes will want to be making sure the objectives the schemes have truly reflect the objectives of members. Defaults are by their very nature one-size-fits-all arrangements – trustees are clearly interpreting their common objectives in different ways.”
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