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Two fifths of UK pension professionals believe auto enrolment will increase risk aversion

The onset of auto-enrolment will signal an adoption of more risk averse investment strategies by UK pension schemes, according to the latest poll by Baring Asset Management.

Two-fifths (39.2 per cent) of UK pension professionals questioned by Barings believe that auto-enrolment will necessitate greater risk averse investment strategies to some extent, with one fifth (19.6 per cent) saying that it will “definitely” have an impact. 

Only 2.2 per cent said that it will “definitely not” have an impact.
The Department for Work and Pensions (DWP) estimates that auto-enrolment will result in between five and eight million people saving into a workplace pension for the first time or saving more, with extra contributions of GBP9bn annually from 20202. Much of this new money is expected to come from low to moderate earners who, up to this point, are not likely to have had access or been eligible for their employer’s pension and are therefore likely to be more risk averse.
Andrew Benton, head of UK and international institutional sales at Barings, says: “The onset of auto-enrolment constitutes a major shift in the UK pensions landscape. Figures from the government show that most new savers will be those on relatively low incomes who have never saved into a pension before and have, therefore, a lower risk appetite.”
According to the Barings’ poll, UK pension professionals expect to see an upswing in communication between schemes and their stakeholders due to auto-enrolment. Just under three quarters (73.9 per cent) stated that more regular meetings would definitely or probably be needed between trustees of defined contribution (DC) schemes and their advisers. Furthermore, 87 per cent of respondents felt that more should definitely or probably be done to inform members of DC schemes about their investment options.
Benton adds: “Considering the high influx of new savers to the pensions world, it is not surprising that communication will become even more key for trustees and pension scheme professionals. Decisions made will have an impact on even more savers, many of whom will have a wider range of profiles in terms of risk and desired savings outcomes.”

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