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Defined Contribution

66% of U.K. DC plans offer investment flexibility for participants – LCP survey

Two-thirds of U.K. defined contribution plans offer investment flexibility, including three or more lifestyle strategies, according to a survey by Lane Clark & Peacock.

Some 36% of the 59 DC plans surveyed by LCP allocate more than 75% of the initial growth phase of their default strategies to equities. Around 37% of the plans invest 50% to 75% in equities, while 20% of plans have less than half of the initial growth phase allocated to equities. For 7% of plans, equities constituted less than 25% of the allocation.

Forty-six percent of plans offer between seven and 12 self-select options, followed by 32% that offer more than 18 options to their participants. Some 15% of plans offer up to six and 7% of plans provide access to between 13 and 18 options.

Two-thirds of plans surveyed by the consultant reviewed costs and charges that plan participants paid in the past 12 months, followed by a third that did it in the past three years. Some 7% of respondents said they had no information on when they conducted the review and 2% did it more than three years ago. More than 80% of DC plans check whether transaction costs are reasonable.

More than a third of plans offer lump sums, annuities or drawdowns in the decumulation phase. A third of plans offer drawdowns only, 22% offer participants annuities only and 15% offer lump-sum payouts only.

Nearly 40% of plans did not offer pre-retirement communication to participants until six months before their retirement date giving participants little time to consider whether the target retirement age remains appropriate and whether their investments suit this target, LCP said in a news release.

"Although we are seeing greater flexibility when it comes to the amount of choice that members are offered, trustees and employers must be mindful of overwhelming DC savers by offering them too much choice without communicating clear explanations," said Erica Beltrami, partner, in the news release. "Trustees and employers should make sure their communications clearly state the objectives of each strategy in a language that ordinary members can understand so that those members can make informed decisions."