We use cookies to support features like login and allow trusted media partners to analyse aggregated site usage.
To dismiss this message and allow cookies to be used, please click "Continue".

Continue

Features

Twitter board

Follow us
  • My week on Twitter 🎉: 4 New Followers. See yours with https://t.co/mCw3VcMQGw https://t.co/odYllgQghg2 days ago
  • Friday View: Border to Coast launches UK equity tender - Rentokil Trustee faces fine - Gleeson directors banned - P… https://t.co/wx2SJ0bGfG4 days ago
  • Shareholder engagement: It’s good to talk For responsible investors talk isn’t cheap. Not only does research sugges… https://t.co/imwrezJuKJ4 days ago
  • Friday View: PA's DB scheme signs buy-out deal - PIC invests in Midlands housing association - Newton Video on Emer… https://t.co/GbWDdyENlN11 days ago
  • RT @minerva_ESG: Hey, all #ESG and#corpgov tweeps, lend a hand to @portfolio_inst important opportunity to support investors' understanding…12 days ago
  • We want to know your appetite and understanding for ESG! Please click the link to take our 5 minute survey to tell… https://t.co/SsVgQzEKIc12 days ago
  • RT @AonRetirementUK: Great event, thanks for hosting @portfolio_inst. Inspired location too! https://t.co/we7Ou46ns312 days ago
  • Full house at our Portfolio Prepared event, Oliver Hamilton Illiquids specialist @AonRetirementUK discusses conside… https://t.co/F0qPFPjUSP13 days ago
  • West Midlland Pension Fund’s Jill Davys: “I am reluctant to overpay for assets” Assistant director of investments a… https://t.co/YHtEIU5BSN15 days ago
  • Friday View: DWP plans ÂŁ1m fine for "reckless" sponsors - Veolia appoints actuary - TPR fines Smart Pensions - UK s… https://t.co/9kUsw6mric18 days ago
  • RT @NewtonIM: Take 5 minutes to complete the @portfolio_inst ESG survey, which is part of its 'Raising Standards in ESG' initiative, and sh…18 days ago
  • This months cover story: Carillion: Lessons for trustees ''The collapse of the construction giant raises questions… https://t.co/L48HDqT0lB19 days ago
  • RT @PensionsSion: Portfolio Prepared? Join us and @portfolio_inst on 4th July 2018 to hear presentations from leading professional #trustee…19 days ago
  • Breaking: DWP proposes ÂŁ1m fine for "reckless" DB sponsors https://t.co/7rsDaGgS5v #DWP #DBWhitepaper #TPR https://t.co/YQqy9Qr7tN21 days ago
  • Our latest Roundtable: Factor Investing ''Pursuing value, momentum, quality or low volatility strategies in bond an… https://t.co/qugefevAN421 days ago
  • My week on Twitter 🎉: 2 Mentions, 3.3K Mention Reach, 5 Likes, 6 Retweets, 7.76K Retweet Reach. See yours with… https://t.co/IZfviidt4H23 days ago
  • Friday View: Trustees feel the heat over climate change - bankers' pensions back in black - TPR suspends trustee -… https://t.co/kUKa8QUF9w25 days ago
  • Increased regulatory oversight will be risk-based, TPR keyperson will meet schemes deemed riskier several times a y… https://t.co/wUiKPGESaU27 days ago
  • Lesley Titcomb, TPR chief executive says change is on its way, the regulator will increase oversight between valuat… https://t.co/Wu8Pv6TfqS27 days ago
  • Join us and @AonRetirementUK on the 4th of July at the luxurious Victorian Bath House featuring educational presen… https://t.co/r1abr8Qls028 days ago

On the radar

A measure of success

A measure of success

By Sebastian Cheek
Tuesday 27th January 2015

The introduction of benchmarks for defined contribution schemes now allows trustees to compare how the market is doing, regardless of scheme-specific objectives. Sebastian Cheek reports.

"Each scheme will have a specific investment objective, but trustees still need to know what the market as a whole is doing."

Henry Cobbe

The use of benchmarks is prolific in the world of defined benefit (DB) investment, but until recently was a rarity among defined contribution (DC) schemes. The introduction of a DC index series by FTSE in October last year however finally gave the industry a barometer against which to judge default fund investment as a whole. The launch was particularly welcome given The Pensions Regulator’s requirement for DC trustees to carry out a strategic review of defaults every three years.

FTSE business development director Jennie Austin explains the index series was launched to offer trustees a performance benchmark that looks at the investment strategy holistically rather than simply the underlying funds in isolation.

“There was no way of evaluating the whole strategy or the combination of the options that have been put together,” she says. “It is a very standard reference benchmark which is something trustees can look at and actually reference their strategy to.”

The series comprises a number of different indices which represent the performance over time of a two-asset portfolio of equities and bonds that, like most glidepaths, moves progressively away from equity towards fixed income. It also has three index groups with different equity allocations at the outset – 100%, 80% and 60% – to reflect different default risk profiles, as well as different target dates – 2005, 2015, 2025 and 2035 – to reflect cohorts of people retiring at different times.

Investment research and advisory firm Elston Consulting designed the series in conjunction with FTSE. Managing director Henry Cobbe explains in DC pensions, each scheme will have a specific investment objective, but trustees still need to know what the market as a whole is doing.

“Comparing against the FTSE 100 is not appropriate because for different cohorts at different stages of the journey their risk exposure is going to be very different,” he says. “So all we are doing is trying to establish that neutral broad market benchmark but in a cohortised format.”

The indices have a two-asset approach to reflect the two polar opposite choices available to members investing in capital markets: the market portfolio which is, broadly speaking, the global equity market to target a benchmark for younger savers; and the risk-free portfolio or index-linked gilts to target a benchmark for income in retirement.

By comparing the default strategy to a neutral benchmark trustees can also see the value added by making changes to their portfolios such as adding alternatives or multi-asset funds. For this reason, as Cobbe says, the index series does not include asset classes outside of equities and bonds because that would deviate away from the indices’ neutral position.

Page: 1 2
0

Leave your comment

View our comments policy

Please login or register with us to leave a comment. It's completely free!

Friday View

Friday View

Shareholder engagement: