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PPF Purple Book: Conservative investment could restrict retirements of the auto-enrolment generation

The Pension Protection Fund (PPF) has released the latest edition of its Purple Book which gives an update of the health of Defined Benefit (DB) Pensions in the UK.

  • Investment in shares has dwindled from 61% of DB scheme assets in 2006 to only 29% in 2017.

Hargreaves Lansdown commentary

  • Conservative investment strategies mean greater certainty but at the price of lower returns; lower investment returns mean higher contributions are required from employers.
  • Around 80% of total pension contributions are directed to DB Pensions, yet there are more people saving for retirement in Defined Contribution (DC) pension schemes.
  • Average contributions into DB schemes are 22.9% (split 5.8% member, 16.9% employer), compared to 4.2% into modern DC schemes (split 1% member, 3.2% employer).

Nathan Long – Senior Pension Analyst at Hargreaves Lansdown

‘Of all investors in the UK, final salary schemes should be able to take the most patient, long-term view of asset allocation and investment risk, yet they have become increasingly short-term and conservative in their strategy. Not necessarily because they think this will produce the best returns but because it reduces the uncertainty risk. The whole system is out of kilter.

Lower investment returns mean higher contributions are required to make up the shortfall, so employers are having to pour more and more money into defined benefit pensions. This comes at the expense of the auto-enrolment generation who desperately need higher levels of contribution directed into their modern day pensions, the reality is legacy pensions could be stifling the future retirements of today’s workers.’