- There is over £500 billion held in default pension funds which could be better utilised in a diverse portfolio of high quality funds.
- This report identifies the performance and sector ranking of 10 widely used default pension funds which combined manage over £91 billion on behalf of UK investors.
- These default funds are designed to be broadly suitable for a wide range of employees, but they are still generic options and will not be suitable to all, which is a very real concern.
Default pension funds are not widely understood yet many in the UK find themselves invested in them. Over 90% of Defined Contribution (DC) scheme members are automatically invested in these funds which are automatically chosen for them when they were enrolled into their employers pension scheme.
As a result, many who are invested in defined contribution pensions are unaware of the funds they are invested in or how competitive these funds are. In this report, we analyse 10 of the most popular default pension funds in the UK and identify their recent 1, 3 & 5 performance, sector ranking and provide an overall performance rating. We also show how investors can discover whether the pensions they are invested in have performed well or not with a free portfolio analysis.
10 Popular Default Workplace Pension Funds
Default pension funds are the investment options automatically selected for employees enrolled in workplace pension schemes. Under the auto-enrolment policy introduced by the UK government, most employees are automatically enrolled into a pension scheme, and if they do not make an active choice about where their money is invested, their contributions are placed into a default fund chosen by their employer or the pension provider.
In this report, we feature 10 widely used default pension funds which combined manage over £91 billion on behalf of UK investors, representing some of the largest and most popular pension funds on the market.
1. Aegon Workplace Default (ARC) Pn
Launched on 1 May 2018, the Aegon Workplace Default (ARC) Pn fund currently manages a substantial £6.13 billion of investors' assets, with a focus on long-term growth through a diversified mix of assets.
Operating in two phases, the fund initially prioritises the "growth stage" by predominantly investing (at least 65%) in global equities, complemented by allocations to bonds (corporate and/or government) and cash. As retirement nears, typically six years before the target date, the fund gradually transitions to lower-risk investments to shield savings from market fluctuations.
Consistently outperforming its peers in the PN Flexible Investment sector, the fund achieved growth of 10.98% in the past year, surpassing the sector average of 9.61%. Impressively, its three-year performance yielded a return of 12.56%, outshining the sector average of 6.96%. Over the last five years, the fund has delivered a robust 29.45% return, exceeding the sector average of 25.77%.
2. Aviva Pension MyM My Future Focus Growth Pn
The Aviva Pension MyM My Future Focus Growth Pn fund targets long-term growth by spreading investments across a range of asset classes, encompassing equities, fixed interest, cash, and property.
The fund currently manages £1.2 billion of investor assets and it has consistently outperformed the PN Volatility Managed sector average. Over the past year, it achieved a growth rate of 10.78%, surpassing the sector average of 8.97%. Its 3 year return of 13.37% was more than triple the sector average of 4.74%.
The fund employs tactical asset allocation to adapt to market fluctuations, enhancing returns while minimising risks as retirement nears. With key holdings in prominent tech giants like Apple, Microsoft, and NVIDIA, these investments play a pivotal role in driving the funds performance.
3. Global Investments (up to 85% shares) 0.5% Pn
This fund is part of The People’s Pension scheme, one of the largest pension providers in the UK, managing £22.65 billion in assets.
The Global Investments (up to 85% Shares) 0.5% Pn fund aims to achieve long-term capital growth by diversifying across various asset classes, primarily in the UK and overseas. The fund is medium to high risk, typically holding up to 85% in equities, which provides significant exposure to potential growth but also involves higher volatility.
Over the last 1 & 3 years, it returned growth of 10.59% and 8.02% respectively, which was better than the sector averages of 9.4% and 7.35%. Over the past five years, the fund has achieved growth of 27.80%, which also surpassed the sector average of 22.62%.
4. L&G PMC Multi-Asset Pn G17
Since its launch in 2018, the L&G PMC Multi-Asset Pn G17 Fund has struggled and underperformed relative to its peers in the PN Mixed Investment 40-85% Shares sector.
The primary objective of this fund is to provide long-term investment growth by investing in a wide range of asset classes. Its diversified approach is designed to reduce exposure to downturns in equity markets, making it less vulnerable compared to a fund that invests solely in equities. However, this also means that in stable or positive market conditions, the fund may not perform as strongly as an equity-only fund.
Despite the broad diversification and dynamic investment strategy, it has faced challenges in delivering returns that keep pace with its sector peers in recent years.
Over the past year, it returned a growth of 8.12%, which is below the sector average of 9.4%. It hasn’t just been the past 12 months that have been difficult for this fund. The 3 & 5-year performances were also poor, with returns of only 3.03% and 16.76%, respectively, both of which are significantly below the sector averages of 7.35% and 22.62%. The consistent underperformance has led to a one-star rating, making it a less attractive option for investors.
5. NEST 2040 Retirement Pn
This fund is part of the National Employment Savings Trust (NEST) Retirement Date Funds, which are structured to manage the pension savings of individuals expected to retire around the year 2040.
The NEST 2040 Retirement Pn fund has a target of achieving investment returns that are equivalent to the Consumer Price Index (CPI) plus three percent, ensuring that all scheme charges are covered over the long term.
With approximately £11.7 billion under management, the fund aims to maintain a long-term volatility average of 11 percent, balancing the need for growth with the management of risk. The primary goal of the fund is to achieve steady growth in real terms over the life of the fund, maximising retirement incomes by taking sufficient investment risk at appropriate times while simultaneously reducing the likelihood of extreme investment shocks.
Over the past 1, 3 and 5 years, it returned growth of 10.80%, 12.53%, and 36.78%, respectively, each of which ranked in the top 50% of funds within the PN Flexible Investment sector.
6. NOW Pensions Diversified Growth
The NOW Pensions Diversified Growth Fund (DGF) is designed to provide stable growth above the inflation rate while minimising volatility through diversification across various asset classes.
As part of a lifecycle strategy, this fund gradually shifts its allocation towards lower-risk assets as members approach retirement, transitioning into the Retirement Countdown Fund (RCF) ten years before the planned retirement age.
Launched on 18 December 2012, it is classified within the PN Mixed Investment 20-60% Shares sector and manages approximately £4 billion of investors' assets. The fund has consistently ranked among the top 25% in its sector, with 1, 3, and 5-year growth rates of 12.56%, 5.94%, and 20.67%, respectively, outperforming sector averages of 8.05%, 1.77%, and 11.82%.
7. RLP Governed Portfolio 4 Pension
The ‘Royal London Governed Portfolio 4’ pension fund aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with a moderately cautious or balanced risk attitude over a long time period. The fund acts as a readymade portfolio with underlying holdings consisting of a range of Royal London funds.
The fund ranked among the top performers in the sector with a 5-star rating and has returned growth of 10.70%, 14.94%, and 28.63% over the past 1, 3, and 5 years, respectively.
These returns are among the very best in the sector, particularly noteworthy given the fund's relatively low-risk approach in a sector that typically includes more adventurous funds.
8. Scottish Widows Pension Portfolio Two Pension Series 2
The Scottish Widows Pension Portfolio Two Pension Series 2 fund launched on 6 February 2006 and currently manages £35.9 billion in client assets, making it Scottish Widows' largest pension fund - primarily because it serves as the default workplace pension option for many UK investors.
It aims to deliver long-term growth by investing predominantly in equities, with some exposure to fixed-interest securities and property assets. The fund primarily uses a passive management strategy, tracking benchmark indices, but also includes a small portion of active management to potentially enhance returns. This strategy allows the fund to maintain a diversified portfolio across various geographic regions, including the UK, other developed markets, and emerging markets.
Over the past year, it delivered a return of 11.78%, outperforming the sector average of 8.14%. Over three years, it grew by 11.38%, significantly surpassing the sector average of 2.61%. Its 5-year growth of 30.05% was also above the sector average of 15.34%, placing it among the top performers in the PN Specialist sector.
9. Stan Life Sustainable Multi Asset (AP) Pn S4
The Stan Life Sustainable Multi Asset (AP) Pn S4 fund is designed to provide long-term growth while managing risk rather than targeting a specific level of return. This fund is part of Standard Life's Active Plus range, which offers five different combinations of investment risk and return levels. Investors can choose a fund that matches their risk tolerance, and the fund managers adjust the asset allocation accordingly.
The fund primarily invests in a diversified portfolio that includes equities, bonds, and alternative investments, such as absolute return funds. The goal is to achieve positive investment returns over the medium to long term, regardless of market conditions.
This £7,209.22 million fund delivered robust returns of 10.58%, 12.00%, and 22.41% over the past 1, 3, and 5 years, respectively. These returns outperformed the sector averages, which were 8.05%, 1.77%, and 11.82% over the same periods.
10. HL Growth A Acc
The primary objective of HL Growth A Acc fund is to deliver long-term growth over rolling 10-year periods by investing in a variety of global asset classes through other collective investment schemes.
The fund was launched in December 2021 and manages £1.28 billion in assets. Its 1-year performance has been competitive, delivering a return of 11.99%, which is higher than the sector average of 9.66% in the IA Mixed Investment 40-85% Shares sector. This makes it an attractive option for investors with a higher risk tolerance looking for robust growth potential through active management and global diversification.
Why Default Pension Funds Are Unlikely To Be The Best Option
Default pension funds in the UK are the investment options automatically selected for employees enrolled in workplace pension schemes. Under the auto-enrolment policy introduced by the UK government, most employees are automatically enrolled into a pension scheme, and if they do not make an active choice about where their money is invested, their contributions are placed into a default fund chosen by their employer or the pension provider.
These default funds are designed to be broadly suitable for a wide range of employees, but they are still generic options and will not be suitable to all, which is a very real concern. There is over £500 billion held in default pension funds which could be better utilised in a diverse portfolio of high quality funds.
Default pension funds adopt a one-size-fits-all approach, disregarding individual investor needs and risk profiles. This standardised strategy often misaligns with specific financial goals and time horizons. These funds typically aim for broad market exposure, potentially sacrificing performance and missing higher-quality investment opportunities.
Although many of the Default pension funds featured in this report have ranked competitively within their sectors, they still fall short when compared to a diversified portfolio of high quality funds.
A diversified portfolio of high-quality funds offers a more tailored approach. This strategy aligns investments with an investor's risk tolerance, investment horizon, and financial goals. It allows for active management and portfolio adjustments in response to market changes, a flexibility default funds generally lack.
Consequently, a well-diversified, high-quality portfolio often proves superior for long-term wealth accumulation while effectively managing risk.
Quality Advice Can Help Maximise Investment Potential
While the key factors for good investment advice can add value to any investment portfolio there are a number of additional factors that most advisers don't utilise, factors that can add even more value to investors.
A limited number of advisers possess extensive expertise in fund and fund manager performance, crucial areas that, if carefully assessed and strategically utilised, can greatly enhance the construction and management of a high-performing fund portfolio, ultimately adding substantial value.
These skilled advisors excel in constructing and managing portfolios tailored to their clients' risk tolerance and financial goals. However, as with any industry, there are professionals who excel in their craft and those who fall short. The challenge in the financial sector lies in the difficulty for clients to discern the level of expertise of their advisor until they entrust them with their investments.
When entrusting your portfolio to a financial advisor, it's crucial to partner with someone who possesses in-depth, research-driven knowledge of fund performance. While some advisors excel in expertise and understanding of fund selection, it's important to note that fund performance is not a regulated aspect of financial planning. As a result, many advisors may lack the necessary expertise in evaluating the quality of funds they recommend.
Top-tier advice and investment management firms possess a deep understanding of fund and fund manager performance, allowing them to pinpoint optimal choices and construct high-performing portfolios efficiently. This expertise is what sets the best advice firms apart from the rest.
Find out more - Book a no obligation call with a Yodelar Investments Adviser
Invest in Quality and Optimise your Retirement Saving With Yodelar
At Yodelar, our portfolio development is based on years of exhaustive analysis of the fund universe and managers. We evaluate over 100 managers, tens of thousands of funds, and 30,000 model portfolios. Our ongoing research shows that only a small subset of funds and managers consistently outperform, with over 90% of portfolios containing chronic under-performers.
For investors looking to optimise their retirement savings, exploring a more tailored investment strategy could lead to better outcomes than relying solely on default pension funds. At Yodelar, we specialise in creating portfolios that are rigorously researched and designed to maximise your investment potential.
