The Pensions and Lifetime Savings Association has published five year trend analysis based on 63 of its fund members (representing 2.8 million members and £243 billion in assets under management in 2015) who responded to its Annual Survey every year between 2011 and 2015. 

This trend data analysis is taken from a sub-sample of respondents to the full Annual Survey 2015 – headlines from which can be found in the executive summary. These trend data highlight the continued shift from defined benefit (DB) to defined contribution (DC) pension provision over the five years, with 60 percent of this sample’s active scheme membership in DC (40 percent in DB) compared to just 32 percent in 2011 (68 percent in DB) (footnote 1). Today almost half (48 percent) of DB schemes are closed to both new employees and future accrual, compared to 31 percent in 2011.

DC employer and employee contribution rates have been generally level over the last five years, and over this time matching contributions have been the most common contribution base. An encouraging trend is the rise of good DC governance with growing oversight of contract-based arrangements. The existence of a management or governance committee grew from 60 percent of contract based schemes to 78 percent among these respondents over the five years.

Over the last four years (question only introduced in 2012), trends in the investment strategy for the default fund are evident among these respondents. For the growth phase, passive tracker has remained the most common approach since 2012 but at retirement phase has seen a very recent shift from a focus on fixed interest, in direct response to the pension freedoms. Whilst it is too soon to draw any strong conclusions about asset allocation of DC default funds during at retirement phase following the reforms, this development could be an indication of the direction of travel.

The overall running costs of a DB scheme have become more expensive. Within the data there has been a particular jump in the average cost of administration and record keeping, which in the 2015 survey stands at £48 per member up from £29 per member in 2011. Fees to consultants have also risen to £30 per member in 2015 from £21 in 2011. However, the cost of fund management has dropped to £197 per member in 2015 down from £206 in 2011. Also, whilst employee average contributions in DB schemes were generally level over the last five years, typical employer contributions rose to 23 percent in 2015, up from 17 percent in 2011.

Over the last five years the strength of DB schemes’ employer covenants among this sample has largely stayed the same, or improved The exception to this was at the beginning of this period in 2011 when over half (55 percent) of schemes reported their covenant had weakened over the last three years; almost certainly a symptom of the financial crisis of 2008-2010. For DB schemes, the last five years have seen a shift away from equities (2011: 42 percent 2015: 34 percent) and increased diversification through investment in ‘other’ assets (2011: 15 percent 2015: 28 percent) including hedge funds and infrastructure Joanne Segars, Chief Executive, Pensions and Lifetime Savings Association, commented: “Our trend analysis finds many of the key trends continuing – the decline of DB being an obvious example. But next year we have the end of contracting out and the possibility of further radical changes to pensions’ tax relief. The former means increasing costs and complications for DB schemes in particular. The latter in its most extreme form could completely undo the most positive change in recent years of enrolling more than five million new savers in to pensions. So it’s possible that what we’re seeing this year is merely the calm before the storm.”