Plan executives, their consultants and money managers in the nascent defined contribution market in the U.K. are embracing the fact that one size does not necessarily fit all: Participants need different investment strategies, information and guidance in different phases of life and retirement.
Age already is a key factor in determining asset allocations for different phases of participants' lives. However, DC plan executives in the U.K. as well as their investment managers and consultants are now exploring other ways to create cohorts of investors, including their investment preferences — such as responsible investment and risk appetite.
As such, financial wellness — used in the U.K. to mean achieving better retirement outcomes — is moving up the agenda of plan sponsors. Financial wellness efforts in the U.S., by comparison, have tended to focus on non-retirement assistance in areas such as debt management, student loans or household budgeting. In the U.K., firms are only beginning to build tools to assist participants with financial planning, as a way to help them increase contributions, sources said.
"As we start to get better data, we are on the cusp of investment solutions being more tailored to the needs of the workforce" becoming the norm, said Jonathan Parker, director, DC and financial well-being consulting at Redington Ltd. in London.
Sources said the starting point is to profile participants: managers harvest data on financial circumstances and expectations by surveying employees, with a view to boosting retirement outcomes. That might be by encouraging participants to increase voluntary contributions, refocusing DC default strategies, creating better options outside the default fund, or a combination of these elements.
As plan executives wake up to the need to be smarter with their workforce profiles and default funds, they are increasingly seeking consultants or managers that can conduct workforce studies.
Redington, for example, is designing a new default investment option for an employer in the financial technology arena. Mr. Parker declined to name the company or describe the plan.
"Having first studied the workforce together with this employer, we are now designing a default, which would incorporate more diversification and enable participants access to more active strategies," he said.
One finding in its work was that some participants were willing to pay up to 40% more in fees in order to get better returns, he noted.
However, plan practice in obtaining an accurate and representative dataset still needs to improve before incorporating this information into DC defaults and design can become widespread. DC in Europe is still a young market — the U.K.'s automatic-enrollment rules only became effective in October 2012.