Alternative assets could present defined contribution schemes with a means to increase value for members without taking on any extra risk, the Pensions Policy Institute has found.

The PPI’s report, published yesterday (February 2), stated DC default funds could better serve the needs of members by expanding the range of asset classes they invest in, putting more focus on better returns and lower volatility.

Those who would benefit from an increased focus on returns include those working beyond the state pension age, savers that have marginal amounts of savings, individuals with “patchy” work and contribution records, and members who have both defined benefit and DC savings.

The individuals who would reap the rewards from reduced volatility, include members who stop contributing before they reach the state pension age, those who purchase an annuity or use uncrystalised pension lump sums, and savers without supplementary savings.

The PPI report sets out three policy options for achieving better member outcomes, the first of which would see default funds increasing allocation to alternatives to enhance returns, while also increasing diversification.

The second option would see schemes use existing member data to provide prompts about using non-default or self-select strategies, while the third option would involve gathering more data in order to make default strategies “more tailored”, as well as providing prompts about non-default strategies.

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