BlackRock is extending access for UK pension schemes to its target-date funds range, LifePath, to meet an expected surge in demand arising from new auto-enrolment pensions laws.
According to BlackRock, LifePath funds are the first annual target-date funds for ‘bundled’ DC pension schemes and the firm expects the UK sector to quadruple in size in five years.
Workplace pension schemes using BlackRock for scheme administration, investment funds and member engagement tools – so-called ‘bundled DC’ schemes – can now access the LifePath range of annual target-date funds.
Previously these were only available to a limited number of pension schemes managed by third-party administrators on an ‘investment-only’ basis. They are unique in offering pension savers funds which target a specific retirement year, rather than a range of years.
The UK’s defined contribution (DC) market is estimated at £500bn of assets by The National Association of Pension Funds, but just £2bn (0.4%) is held in target-date funds, according to the CFA society.
BlackRock expects assets in UK target-date funds to quadruple to £8 billion by 2018 as auto-enrolment takes effect and growth in the use of these funds mirrors that seen recently in the US pensions market.
Auto-enrolment requires UK employers to help more workers save for retirement and is set to bring 10 million new pension savers to DC schemes in the UK, according to the Department for Work and Pensions.
BlackRock anticipates this will trigger a surge in demand for target-date funds which provide a simple target retirement date and actively switch to less risky assets the closer a person gets to retirement. Within the US pensions market, target-date funds are already established having grown rapidly in recent years to $485bn assets at the end of 2012, up 29% on the previous year, according to Morningstar.
Paul Bucksey, head of DC Business Development and Strategy at BlackRock, said: “Employers and pension savers are facing three significant challenges in auto-enrolment, low yields, and increasing longevity, and we feel target-date funds are a great way to achieve the outcomes they want.
“They help employers meet their responsibilities, while scheme members find them easy to understand, and we expect to see many employers offering them as default funds over the next few years.”
BlackRock manages approximately £40bn in the UK DC market, offering bundled DC services on a trust and contract basis, investment only funds through third party administrators, as well as the BlackRock Master Trust which combines trustee services with scheme administration, an investment platform and member engagement tools. 475 employers in the UK trust BlackRock to provide them with DC solutions and the firm helps over 220,000 DC scheme members to save for retirement.