Boom in DC assets for U.K. plans coming

U.K. defined contribution plan assets should triple by 2023, reaching 676 billion ($1.1 trillion), said a report by the London-based market research firm Spence Johnson.

“What we are about to witness is the greatest explosion of growth that the DC market has ever (seen), or probably ever will see,” said the report, which estimated current DC assets at 214 billion. By contrast, DC plan assets rose about 50% between 2003 and 2013, the report said.

“The factors that lie behind this are varied, but the most significant (reason) is (participant) growth,” the report said. The decline of DB plans and U.K.-wide auto enrollment among DC plans were cited as reasons more participants are contributing to DC plans.

The number of DC participants should grow to about 18 million in 2023 vs. an estimated 8 million this year, the report said.

The average participant's account balance should reach 39,000 by 2023 compared to 25,000 for 2013. “From this we can see that DC saving will almost certainly be inadequate to ensure that members receive a satisfactory income in retirement,” the report said. Even as DC accounts grow, they are “still not high enough to replace earnings at a rate which DB pensions offered.”

The report predicts most DB plans will have closed by 2023. It forecasts that 85% of the approximately 2 million participants now in DB plans, “most of whom are in large companies today, will by then have converted to DC (plan) membership.”

Nils Johnson, client director at Spence Johnson, could not be reached for comment.

This article originally appeared in the December 9, 2013 print issue as, "Boom in DC assets for U.K. plans coming".