A low-risk approach to DC plan investing could help keep some young employees enrolled in the company pension plan, especially while markets are volatile.
“A low-risk approach, much like the NEST foundation stage strategy, could be a suitable default for young members who have small investment pots, particularly those at risk of opting out,” explains Martyn James, principal and DC expert at Mercer investments. “A higher risk, higher return strategy could be badly affected by a market downturn, leading members to opt out of pension arrangements altogether.”
Although the firm suggests keeping the member profile in mind when setting the default strategy, James concludes, “In the current environment a well-diversified growth fund including, for example, alternative assets as well as equities, might provide a better performing solution in the foundation phase.”