Continuing from our insight on Tuesday, today we take a closer look at what default investment options are available from the different workplace pension providers.
A high percentage of workplace pension scheme members use the default investment options for their pension. Therefore, finding the right mix within the default investments for members is very important for employers when setting up or reviewing a scheme.
With auto-enrolment leading to so many new members entering default investment options, it is not surprising to see that all workplace pension providers have a core default fund which is used for auto-enrolment. The performance data for all of these core default funds is available online.
Other than Fidelity and Fidelity Master Trust, all workplace pension providers also offer additional auto-enrolment default funds. Mercer Master Trust Aviva, Mercer Master Trust Scottish Widows, Royal London, Scottish Widows GSIPP, Standard Life and Standard Life DC Master Trust offer the largest range of auto-enrolment default funds, with over 20 funds on offer each.
Sustainable investment options are also fairly well supported by default funds. Only Aegon Workplace ARC, Fidelity, Fidelity Master Trust, Hargreaves Lansdown, and True Potential do not adopt an ESG screening process for their default fund(s).
Interestingly when it comes to settling limits on charging for the default fund options, only True Potential has not set limits.
The majority (63%) of workplace pension providers only allow a scheme to set up one default investment fund on their platform. However, Aegon Master Trust, Fidelity, Fidelity Master Trust, Royal London, Standard Life and Standard Life DC Master Trust all allow over 11 default funds to be set up.
Most providers also have a range of fund ranges specifically designed for various target markets for schemes to choose from, all of which are regularly reviewed in line with their objectives. Only Legal & General, Legal & General Master Trust, Scottish Widows, Scottish Widows GSIPP, and Scottish Widows Master Trust do not.
All providers have a fund removal process in place which incorporate a review period. Other than Hargreaves Lansdown, all fund removal processes include external research to determine action required.
In terms of frequency of reviews of the design of their auto-enrolment investment offering, there is quite a large difference between providers with reviews ranging from bi-annual to quarterly.
The approach towards risk ratings is also a little more sporadic. Risk ratings are included in the standard literature for all default investment options from workplace pension providers other than those of Mercer Master Trust Scottish Widows, Royal London, Scottish Widows GSIPP and Scottish Widows Master Trust.
However, only Aviva Designer, Aviva My Money, Aviva My Money Master Trust, Standard Life, Standard Life, Standard Life DC Master Trust and True Potential have risk ratings calculated against 10-year sector standard deviation. Risk ratings are reviewed annual for 68% of workplace pension providers, quarterly by 26%, and bi-annually by Hargreaves Lansdown.
Other than Fidelity, Fidelity Master Trust and True Potential, all workplace pension providers offer lifestyle funds as an option when it comes to default investments.
Overall, our data shows that some workplace pension providers offer a lot more choice than others when it comes to default investment options. However, every scheme is different so a provider with options that work for one scheme may well not have any options that suit another. It is therefore important for employers and scheme administrators to carefully review the default investment options available with any provider they are considering, to ensure that they make the right choice. This is especially important for schemes where a lot of members have been auto enrolled as they are far more likely to have a high percentage of members who are enrolled in default investment options.
