Metlife says the Personal Accounts Delivery Authority must learn from mistakes in the US when designing the target-date funds it is set to recommend as the default for personal accounts.
Speaking at a press briefing in New York, corporate product and market strategies vice-president Cynthia Mallett said target date funds had performed disastrously over the past three years in the US.
She said: “The target-date funds were a disaster in terms of asset class performance in 2007/08 and they have not done very well in 2009 either.
“There have been hearings over the summer to figure out why that happened because everybody thought that target date meant that if you are getting close to retirement, you will be moved to lots of fixed income and safer assets but it turns out that is not true.”
Mallett said the range of equity allocation in the 2010 cohort of funds for pension savers who are supposed to be retiring next year was between 29 per cent and 71 per cent.
She added that some funds, for example, many 2020, 2030 and 2040 tranches, had no fixed-income allocation at all.
Mallett said: “I think that it would be advisable for those who are defining what target date means for the UK to carefully consider the experience in the US.
“There are structural issues and if people are clear about what they want the outcome to be and there is clear communication around expectations, that will help but there are potential problems.”
A Pada spokesman says: “There is a key difference between the US and the UK markets. In the US, people do not generally buy annuities at retirement, therefore, the life-styling does not have a target of zero equity exposure at the maturity date of the fund.
“Many target date funds had equity exposure of over 50 per cent at or close to maturity and got hit badly by the financial crisis in 2008. It is important to remember there has been a consultation on the investment strategy and there was overwhelming support for our proposed TDF approach.
“Having a fund for every year of retirement will make it easier to communicate with members, allowing them to switch retirement dates more easily. We continue to engage with all parts of the industry.
“Decisions will be made on the investment strategy by the trustee corporation, not Pada, and this decision will be made using all the evidence available to them and in the interests of the scheme’s future members.”