Almost nine in 10 defined contribution savers are in schemes which invest in at least one productive asset class, according to research by The Pensions Regulator.
Just under half (45 per cent) of defined benefit schemes, 57 per cent of large DC schemes, and 72 per cent of DC master trusts hold some productive assets, such as infrastructure, private equity or renewables.
Large-scale DB and DC schemes are more aware and engaged with their governance compared with smaller schemes.
TPR said this may put them in a stronger position to make informed decisions around diversified investments, cyber security and environmental, social and governance
The findings also suggest smaller schemes are at risk of not performing as well against TPR’s expectations on investment governance and governance more broadly.
Nausicaa Delfas, chief executive at TPR, said: “We believe sound investment in diverse assets could improve outcomes for savers and generate growth for the UK economy. The two do not have to be in conflict.
“We want to help all schemes to be able to consider a full range of investment options, either through ensuring strong governance or by encouraging them to consolidate.”
The survey revealed that while many larger DC schemes hold productive assets, such as infrastructure, private equity or renewables, a sizeable proportion of small (57 per cent) and micro schemes (70 per cent) did not know if their scheme held assets in these classes.
TPR said this lack of understanding could indicate poor governance standards.
To tackle this, TPR is probing how many schemes meet their legal duty to carry out a detailed Value for Members assessment.
It said this has seen nearly one in five schemes concluding they do not offer value and winding up and fines issued for non-compliance.
TPR is also developing a Value for Money framework in partnership with Department for Work and Pensions and the Financial Conduct Authority and introducing a more proactive supervisory approach to improve the quality of trusteeship.
Investment diversification
Meanwhile, the regulator has also outlined key areas where diversification in pension scheme assets to manage risk is important.
This includes diversifying and ensuring a scheme is not overly reliant on the performance of a single asset class or investment.
It also said a portfolio that includes growth assets could lead to higher returns while still balanced by more stable, lower-risk investments.
TPR has called on trustees to work with investment advisers to develop a well-diversified investment strategy that aligns with the scheme’s risk tolerance and long-term goals.
sonia.rach@ft.com
