One of the main drivers of growth is regulatory changes, including the start of auto enrollment later this year for the national DC plan, called the National Employment Savings Trust. In addition, recent market volatility is driving more U.K. companies to close their DB plans to new members and, increasingly, to freeze them and halt accruals to reduce pension costs, sources said.
According to the 2011 FTSE 100 annual defined contribution plan survey, about 83% of the corporate DC plans surveyed offered a default option. Of those, 90% are invested in lifestyle strategies, which are largely passive.
Since the 2000-'01 tech bubble and then the 2008-'09 financial crisis, more corporate plan sponsors are re-evaluating the default investment options in their defined contribution plans to include more active management as a way of better controlling portfolio volatility, consultants and managers said.
Marks & Spencer Group PLC Pension Scheme, London, is among the corporate sponsors reviewing its investment strategy prior to auto enrollment. Julie Parker-Welch, pensions manager, said M&S has put in place “a new default fund and an amended list of funds that are more appropriate to what will be a very different membership profile once we start to auto-enroll.” M&S has about £140 million ($222 million) in DC assets and £6.5 billion in DB assets.
“There's no question that in the U.K., DC is coming of age,” said Andrew Dickson, investment director of the U.K. institutional business at Standard Life Investments Ltd., Edinburgh.
“We are seeing significant changes in asset allocation strategies,” Mr. Dickson said. Plan sponsors are “replacing a portion of the passive (equity) strategies within the default options with one or two active managers, for example, in diversified growth or absolute-return strategies. In some cases, the shift involves maybe a third to half of the default fund accumulation.”
SLI's parent, Standard Life PLC, is one of the top bundled DC providers in the U.K., with about £23 billion in DC assets under management.
J.P. Morgan Asset Management historically had accessed the U.K.'s DC market through mutual fund offerings on corporate DC platforms. But executives have decided to make a bigger push to gain market share. Simon Chinnery, executive director and senior client adviser, is moving into a new role to strengthen the firm's DC capabilities in Europe from its London office.
“It's a big game in town,” he said. In his new position, Mr. Chinnery said he'll be looking at ways to design solutions specifically for “different parts of the market” such as multinational companies. J.P. Morgan also will be considering ways to “carry DB practices to the DC world,” including governance, portfolio diversification and asset allocation strategies, he added. In Europe, revenue from the DC business currently accounts for less than 10% of total revenue.
“The expectation around the U.K. retirement market is that (annual) inflows will triple from about $27 billion to $99 billion by 2017,” Mr. Chinnery added. “The momentum is undeniable.”
The compound annual growth rate for DC inflows is estimated to be about 12% for at least the next eight years, bringing the total DC assets in the U.K. over the �1 trillion mark, according to Dominic Fryer, head of strategy and risk at Friends Life Ltd, also one of top DC platform providers in the U.K. with about £20 billion in AUM.
In the last year alone, BlackRock has more than doubled the number of senior management roles in its U.K. defined contribution division to eight from three. In addition to Mr. Smith, who is head of the employee savings service center, they include Paul Gilbody, head of DC consultant relations, formerly director of market engagement at NEST, and Paul Bucksey, head of DC business development and client management, who was head of defined contribution business development at Friends Life Co. The total number of employees in the U.K.-based DC team has increased to 130 from 85 in August 2010, Mr. Rumbles said.
“With the migration of assets in DC, there will be more focus by the financial industry and consultants to provide solutions that are more geared toward DC, not only from the current providers, but also from new providers entering the market as well,” said Amol Mhatre, head of strategy and solutions within the global retirement and investment practice at Aon Hewitt, London.
Richard Skipsey, head of platform distribution at Legal & General Investment Management, London, said his firm also has shifted more internal resources to the defined contribution team.
“Traditionally, we've provided a wide array of diversified, reliable building blocks that consultants can then put together like pieces of a jigsaw puzzle, to provide solutions to their clients,” said Mr. Skipsey, whose firm manages about £20 billion in U.K. DC assets. “Increasingly, there's a need for more sophisticated, off-the-shelf products such as diversified growth funds, pre-retirement solutions and target-date funds.”
While LGIM's strategic business plan hasn't changed, it is evolving its range of services and products in line with market developments. Mr. Skipsey's role itself is new, part of a bid to put more focus on wholesale distribution of funds through DC platforms.
Mr. Skipsey added: “There's a potential DC gold mine out there.”