Scottish Widows' defined contribution (DC) default fund has returned the best performance for workplace pension savers over the the last five years, accordingto data.
With more than 90 per cent of auto-enrolled workers saving for retirement through their workplace pension default fund, Hargreaves Lansdown compared the returns of these schemes.
With the 5th birthday of the start of auto-enrolment on 1 October, it is now possible to analyse these funds performance during the last five years.
The Department for Work and Pensions (DWP) confirmed last week that more than 8.5m more people have been saving into a workplace pension scheme due to auto-enrolment, which was launched by the government in 2012.
The funds have an equity exposure ranging from around 45 per cent to 85 per cent.
Scottish Widows delivered best return at 12.5 per cent over five years. The fund has 85 per centof its assets invested in shares.
Auto-enrolment provider Nest came close in second, with a return of 11.7 per cent.
It takes the first place when the analysed period is only three years, the research shows.
However, this result does not account for the upfront fee of 1.8 per cent that it applies to each and every contribution, said Hargreaves Lansdown.
Standard Life’s auto-enrolment default, Active Plus III” fund, had the lowest returns, at 8.21 per cent.
However, the fund has taken on lower risk, which means that although investors’ pots will be lower in value, they will have less fluctuations.
| Default Fund/Asset class | 5-year return | 3-year return |
| Nest | 11.70 | 11.80 |
| The People's Pension | 10.90 | |
| Scottish Widows | 12.45 | 10.73 |
| L&G Multi-Asset Fund | 9.82 | 10.35 |
| L&G Consensus Index | 11.03 | 9.72 |
| Aviva Diversified Assets Fund II | 9.70 | |
| Hargreaves Lansdown | 9.73 | 9.64 |
| Scottish Equitable Universal Balanced Collection | 9.74 | 9.37 |
| Aviva Mixed Investment 40-85% Shares | 10.61 | 9.09 |
| Standard Life Managed One | 9.86 | 8.22 |
| Friends Life Managed | 8.87 | 7.22 |
| Standard Life Active Pls III | 8.21 | 6.86 |
| Cash | -0.09 | -0.10 |
| Global Shares | 13.92 | 12.83 |
Overall, workplace pension default funds had a return, on average, of 10.2 per cent every year over the last five years.
This is roughly 10 per cent more every year than opting to hold a pension in cash.
Over this period, pension cash funds would have actually lost money, since they fell by 0.09 per cent every year.
However, the research shows that default funds underperform the average global equity fund by 3.72 per cent every year.
Hargreaves Lansdown report is based on data sourced predominantly from Lipper, a financial data firm, but additionally from Nest. Returns are to 30 June this year.
According to Nathan Long, senior pension analyst at Hargreaves Lansdown, default funds “are designed to be a one-size-fits-all solution”.
He said: “As well as investing in shares they will also include exposure to lower risk investments like bonds, cash and in some cases property and commodities.”
He confirmed that opting to invest entirely in shares would have served savers better.
He said: “Since a pension is simply a long-term savings plan, this strategy may suit people with a long time to retirement, like the under 40s.
“Bigger investment returns give you more income in retirement, more flexibility over when you leave work, or both.”
Punter Southall Aspire has also compared default funds returns, finding that over the last three years Zurich was the best performer (11.8 per cent).
This fund, which was not considered in Hargreaves Lansdown’s analysis, has a relatively higher level of risk (9.3 per cent) compared to the other defaults, mainly due to the levels of equity within the fund (77 per cent equities).
maria.espadinha@ft.com
