Pensions  

Urwin: shift to DC pensions ‘inexorable’

Urwin: shift to DC pensions ‘inexorable’

Defined contribution assets are expected to overtake those of defined benefit schemes in the next few years, Roger Urwin of Towers Watson has said.

The global investment director was speaking after the consultancy firm released its yearly Global Pension Assets Study on Monday.

The 39-page report showed DC assets grew with a compound yearly growth rate of 7 per cent for the 10-year period to 2014 against a rate of more than 4 per cent for DB assets.

As a result DC pension assets have grown from 38 per cent of all pensions assets in 2004 to 47 per cent in 2014.

Mr Urwin said: “The inexorable shift to DC, which we believe will soon constitute the majority of global pension fund assets, means it is becoming the dominant global pensions model.

“This brings with it the transfer of risk and a new tension in the balance of ownership and control, which will test governments and pension industries around the world.

“The use of passive approaches and smart betas in DC will lead to fee compression. So far that fee compression has been small, but over time it is likely to be a large disruptive force.”

The report also showed global institutional pension fund assets in the 16 major markets grew by more than 6 per cent during 2014 to reach a new high of US$36trn (£23.6trn).

Global pension fund assets have now grown at 6 per cent a year on average since 2004. The UK, however, achieved 37 per cent, while the US had 32 per cent growth.

The only major market to grow its pension assets more than the UK as a proportion of GDP over 10 years was the Netherlands, where they went up by 51 per cent.

This came as research by Citigroup and the Pension Protection Fund found that deficits were rising among UK pension schemes. According to Citigroup, DB schemes could see a deficit of £380bn, while the PPF suggested that its 6,000 schemes have a total liability of £1,503bn (CORRECT).

CountryProportion of DB assetsProportion of DC assets
Australia15%85%
Canada96%4%
Japan97%3%
Netherlands95%5%
SwitzerlandN/AN/A
UK71%29%
USA42%58%

Adviser view

John Bramwell, an adviser with Yorkshire-based PenLife Associates, said: “Over the past few years there has been a drive to put the onus on the individual rather than the employer.

“I worry that individuals won’t understand what they are doing but there are opportunities there, because if they have proper advice they could do very well.”