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FTSE Launches New Benchmarks For UK DC Pensions Market

Date 13/10/2014

  • Represents the performance of a DC pension fund’s glide path
  • Can be customised for any DC pension scheme
  • Helps enable robust governance for auto-enrolment’s 9 million new DC savers
  • New Partnership with Elston Consulting 

FTSE Group, the global index provider, today announces the launch of the FTSE UK DC Benchmark Index Series, a 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. 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.

To reflect differing risk preferences in DC default design, there are three index groups reflecting different equity allocations at the outset, offered as standard:

  • FTSE UK DC 100% Standard Benchmark
  • FTSE UK DC 80% Standard Benchmark
  • 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.

Mark Makepeace, CEO, FTSE Group said: “The FTSE UK DC Benchmark Index Series will provide Defined Contribution providers, fiduciaries and decision-makers with an independent and transparent means of measuring the value added during the investment process. FTSE’s new series promotes transparency and robust governance as more UK schemes transition to a DC model.  With automatic enrolment on track to create 9 million new UK DC savers, on Government estimates, this launch is timely and necessary.”   

Henry Cobbe, Managing Director, Elston Consulting said: “We are delighted to be working with FTSE on this project.  By enabling a quantifiable evaluation of DC strategy performance, using these innovative benchmarks and related analytical tools, we hope to help providers, trustees, Independent Governance Committees, and their advisers ensure the default investment strategy for their schemes is delivering Value For Money and Good Member Outcomes from an investment governance perspective.”

Duncan Buchanan, President, Society of Pension Professionals said: “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. 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.”