Reports and Briefing Notes

The impact of DC asset pooling: International evidence

In recent years there has been much discussion concerning the benefits of pooling assets for investment. For the most part, this has focused on Defined Benefit schemes or the potential of Collective Defined Contribution schemes, however international evidence suggests that there may be scope for pooling to improve member outcomes within a more traditional Defined Contribution arrangement.

‘The impact of DC asset pooling: international evidence’, a report commissioned by Schroders, draws on evidence from large DC schemes in Australia, South Africa, Mexico and Italy to explore the potential link between larger schemes and better member outcomes, as well as the reasons behind consolidation in these countries, and the lessons that may be relevant to the UK DC market going forward.

Chapter one describes the current DC market in the UK, outlining the starting point for any further consolidation and asset pooling, as well as identifying the types of schemes which may have scope to achieve the greatest impact.

Chapter two explores international examples of asset pooling and consolidation in DC pension funds in order to identify the impact that has resulted from increased scale. The international examples discussed in chapter two are: Australia, South Africa, Mexico, and Italy.

Chapter three discusses the potential areas of impact if asset pooling were to increase in the UK DC market, as well as the potential barriers to further consolidation.

Chapter four explores what the impact of asset pooling may be for individual scheme members. Three hypothetical individuals with varying characteristics are used to illustrate the magnitude of changes to pension pot sizes that could be achieved through consolidation and pooling.