FTSE Group has launched the FTSE UK DC Benchmark Index Series, a new 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.
The index provider said that 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.
“With automatic enrolment on track to create 9 million new UK DC savers, on government estimates, this launch is timely and necessary,” said Mark Makepeace, chief executive of FTSE Group.
To reflect differing risk preferences in DC default design, there are three index groups reflecting different equity allocations at the outset, including the FTSE UK DC 100% Standard Benchmark; FTSE UK DC 80% Standard Benchmark; and FTSE UK DC 60% Standard Benchmark.
Additionally, the methodology can be used to create, possibly for the first time, 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.
Duncan Buchanan, president at the Society of Pension Professionals, said that governance is a vital component of any pension scheme. “With DC plans, as the member’s benefits are directly linked to investment performance, it is important that performance can be tracked accurately and benchmarked,” he said. “Automatic enrolment has been designed to encourage a savings culture and the ability for members to measure the performance of their pension savings in a transparent manner is key to promoting this culture.”
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