The firm says that concern about default funds and their need to improve is a well-acknowledged issue in DC pensions. Some change is evident but now that members of DC schemes outnumber members of DB pension schemes, only wholesale change on default funds can prevent an ever growing number of people disappointed about their financial future.
Fidelity International’s executive director of DC business development, Julian Webb, says: “What most members of DC schemes needed going in to this latest period of market volatility was pretty much the one thing they didn’t have: good diversification. It is likely that many of the people invested in default funds, which tend to be legacy funds, often selected for their low risk or fees, will be disappointed, angry or confused as they see their retirement pot battered by the credit crunch”.
Webb adds that diversification can help because a fund that spreads risk across a range of asset classes, which perform differently as the stock market rises and falls, is in with a better chance of providing a less volatile return over the longer term than one purely invested in just equities or a mix of equities and bonds.