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Defined Contribution

PLSA: DC plans becoming dominant retirement option in U.K.

Defined contribution plans are becoming the dominant workplace retirement option in the U.K. following the success of automatic enrollment, said an annual survey of retirement plans conducted by Pensions and Lifetime Savings Association.

DC arrangements have 88% of their assets in default funds in the U.K., the survey found. U.K. employers offer 14 funds on average in their main DC plan, said respondents from the 176 members of the PLSA representing 17 billion ($23 billion) in DC assets and 850,000 participants.

Some 34% of plans surveyed by the PLSA use passive investments in their growth phase strategy of the main DC plan, 26% of them opt for a multiasset fund, while 25% offer a diversified growth fund and the rest have customized solutions.

The total default mean contribution rate was 8.4% in 2017. The mean employee contribution rate stood at 2.4%, while the employers offered mean contribution rate of 5.9%.

Defined benefit funds' investments in equities fell to 23% in 2017 from 28% a year earlier, while assets in fixed income increased to 47% from 45% in 2016. Other assets increased to 30% from 28% in 2016, according to the responses of 176 pension funds with combined assets of 517 billion.

Administrative costs of these pension funds increased 12% in 2017 year over year. Costs were driven by increases to levies, governance and trustee training as well as administration, record keeping and communications, the PLSA said.

Graham Vidler, director of external affairs at the PLSA said in a news release: "The survey charts the growth of DC schemes as the dominant workplace pension option following the advent of automatic enrollment and highlights the stark difference between the amount of money flowing into DB schemes compared to DC schemes."