The UK should adopt Australian rules for DC pensions

17 January 2025

The UK defined contributions pensions market would benefit from Australian-style league tables to improve member outcomes, says XPS Group.

In response to the government’s Pension Investment Review: Unlocking the UK pensions market for growth consultation, XPS said that a key challenge is the assumption that significant consolidation will be beneficial for member outcomes.

It warned that an industry made up of a smaller number of ‘megafunds’ risks introducing diseconomies of scale that may hamper outcomes, including restricted investment flexibility, potential emergence of silos within defined contribution providers and costs associated with mitigating the significant increase in systemic risk.

XPS believes a simpler approach to improving member outcomes would be to commission an independent third party to construct a ‘league table’, comparing risk-adjusted performance across defaults of multi-employer DC providers.

The pensions group argues that league tables would incentivise investment decision-makers to prioritise maximising risk-adjusted returns rather than minimising costs. It said doing so would increase the probability of the DC provider winning and maintaining business and help drive a ‘green’ VFM score.

“League tables are a key reason the Australian DC market is competitive on the basis of performance rather than fees. Whilst the UK DC market has some differences to its Australian counterpart, well considered league tables are a mechanism we can adapt to the UK market to benefit outcomes for members,” the firm said.

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