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Time-Crunched Defined Contribution Managers Risk Underperformance

U.K. pension trustees have little time for defined contribution schemes, and may be missing out on the latest innovations, consultants say.

  • Joe McGrath

Most U.K. defined contribution pension managers are spending less than four days a quarter managing plans, raising concerns that they are missing out on superior returns from new or sophisticated investment strategies.

The discovery came in a report published Thursday by investment consultanting firm Aon, which polled over 320 trustees, pensions managers, HR managers, pensions professionals, and finance managers who collectively oversee more than £50 billion ($66 billion) in defined contribution assets.

Around 40 percent of respondents said they dedicated one to three days to defined contribution matters each quarter, with just over 10 percent saying they spent less than half a day on DC matters over the same time period.

When asked what was preventing them from spending more time on their defined contribution schemes, around 65 percent said it was because of the pressures from their day jobs and other commitments. Nearly half said that managing a defined benefit plan took up too much of their time.

Ben Gold, head of pension investment at consulting firm Xafinity, said he was “astounded” that sponsoring employers are still not allowing pensions managers sufficient time to manage DC plans.

“It is seen by their sponsoring employer as something that is much less important than a day-to-day job,” he said. “I struggle with that. I would presume that a DC pension is deemed to be a significant part of the company’s reward structure. Surely the employer would want the pension scheme to be well-run. Without time, how can trustees ever get to a level of higher knowledge and understanding to consider more complex tools?”

Sophia Singleton, partner and head of DC consulting at Aon, said that some popular investment innovations such as factor-based strategies and illiquid investments were still not being fully embraced by trustees in the U.K. Speaking to Institutional Investor, she said that part of this was because trustees had not yet become “comfortable” with how these investments operate.

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Singleton said she had just conducted a strategy review with a client where she outlined the benefits of factor investing, but said that because the client was unfamiliar with these products, they decided to think about it until their next strategy review in three years’ time.

“It is for the consultants to educate the trustees and get them comfortable with what [a strategy] is,” she said. “This is the challenge that you have with the trustee model. If you can’t get up to speed you have to take a bit more time.”

Skip McMullan, chair of Bank of America Merrill Lynch’s U.K. pension Scheme, said the speed of change in the sector nowadays meant that it was time to take a closer look at the qualifications of all scheme trustees.

 “This is no longer a game that you can play in an amateurish way,” he said. “You are going to have to be properly qualified to be a trustee.”