FTSE launches benchmarks for UK DC pensions market
FTSE Group has launched the FTSE UK DC Benchmark Index Series, a suite of indices developed in conjunction with investment research and advisory firm Elston Consulting.
The new range of products has been designed specifically as a performance benchmark for UK defined contribution (DC) pension schemes.
The index series represents the performance over time of a simple two-asset portfolio that moves progressively away from growth assets to income assets, and is measured for discrete cohorts of savers grouped by expected retirement date. By offering an independent representation of the performance of the glide path as a whole, as opposed to simply measuring the performance of underlying funds, the indices provide a robust benchmark for the broad evaluation of both ‘lifestyle’ and ‘target date’ DC default investment strategies.
To reflect differing risk preferences in DC default design, there are three index groups reflecting different equity allocations at the outset, offered as standard:
• FTSE UK DC 100% Standard Benchmark
• FTSE UK DC 80% Standard Benchmark
• FTSE UK DC 60% Standard Benchmark
Additionally, the methodology can be used to create custom benchmarks for any given DC default strategy glide path. This enables independent evaluation (for discrete cohorts of savers and as a whole) of the value added both by investment strategy design and by manager implementation.
Mark Makepeace, chief executive of FTSE Group, says: “The FTSE UK DC Benchmark Index Series will provide Defined Contribution providers, fiduciaries and decision-makers with an independent and transparent means of measuring the value added during the investment process. FTSE’s new series promotes transparency and robust governance as more UK schemes transition to a DC model. With automatic enrolment on track to create nine million new UK DC savers, on government estimates, this launch is timely and necessary.”
Henry Cobbe, managing director, Elston Consulting, says: “We are delighted to be working with FTSE on this project. By enabling a quantifiable evaluation of DC strategy performance, using these innovative benchmarks and related analytical tools, we hope to help providers, trustees, independent governance committees, and their advisers ensure the default investment strategy for their schemes is delivering value for money and good member outcomes from an investment governance perspective.”