Savers missing out on more than the value of an average house through poorly performing workplace pensions

12 October 2017

  • The difference that pension savers can accrue over the course of their career can vary by as much as £300k depending on which fund their workplace pension is invested in
  • Optimum pension investment strategies must be a key consideration for employers who are responsible for choosing the pension scheme for their staff

The disparity in the investment performance of the UK’s top ten defined contribution (DC) default funds* is so large that savers in the worse fund could be missing out on over £300,000 of additional savings by the time they are 55, according to research by JLT Employee Benefits (JLT). This sum is far in excess of the value of the average UK home**.


JLT found that the annualised performance of these funds over the last five years (since the beginning of auto-enrolment) ranges from 6.3% to 12.5%, showing that the returns of the best performing defaults are almost double those of the worst.

According to The Pensions Regulator, 92% of defined contribution pension savers are invested in a default strategy that their employer chooses on their behalf. Whilst they are able to switch funds, most people remain in the default, either suggesting that they trust that their employer has made the best decision for them, or that they are not sufficiently engaged nor financially literate to make an informed choice.

This finding underlines the magnitude of employers’ responsibility in selecting a good quality default investment strategy for their auto-enrolment pension scheme.

The below graph shows the annualised volatility vs return over five years for the 10 main auto-enrolment providers’ default funds.

Annualised five-year return vs risk

AE default fund whitepaper

In addition, the research found that the funds that had better returns two years ago, didn’t necessarily remain the best ones in the market, highlighting the need for employers to monitor their default fund in order to identify any drop in performance.

Maria Nazarova-Doyle, Head of DC Investment Consulting at JLT Employee Benefits, comments: “Drawing from our experience advising thousands of UK employers on group personal pensions, auto-enrolment default funds are not as plain vanilla as one may think. The disparity in their strategies and risk-return profiles could lead to a huge retirement shortfall, amounting to the equivalent of a property. It is alarming to see that the situation hasn’t improved since we raised this issue two years ago.

“The importance of choosing a good quality default strategy cannot be overestimated. It is tempting for employers to focus on keeping costs down, which is entirely understandable, but it shouldn’t be to the detriment of fund selection.

“Statutory contributions are set to quadruple from 2% to 8% in the next two years and this is a step in the right direction. However, this would have a limited impact if it isn’t backed up with sound investment decisions.

“It is not sufficient to pick a good default investment strategy at the outset and let it run its course. Investment strategies that perform well one year can do poorly another year. Default strategies are like gardens – they need constant monitoring and tending for the best results. They need to be reviewed to ensure they remain appropriate for the type of membership of a scheme as it evolves.”


To bring to life what the 6.2% p.a. difference (12.5% - 6.3%) in investment performance practically means, JLT has made some calculations for two common types of savers.

 AE default fund whitepaper  Max is in his early twenties and earns £22,000 per year. He is just starting to save into a pension with work. He is just starting to save into a pension and both he and his employer are only making minimum AE contributions of 2%, which will increase in line with auto escalation. Although he has no pension savings yet, he has many years ahead of him to work and save.
 AE default fund whitepaper  Hilary is 30 and earns £30,000 per year. She has already accumulated a modest pension pot of £10,000. Her contributions of 8% are close to the current national average.

In an extreme scenario whereby the returns that we have witnessed over the last five years continue at the same level over the accumulation period, JLT has estimated the value of their pension at the age of 55, which is the earliest time they can draw their benefits.***


If invested in the worst default fund

If invested in the best default fund










* This paper builds on our 2015 research into the risk and return profiles of the ten largest group personal pension (GPP) providers and highlights what has happened with their “in-house” AE defaults over the last five years.

** The average UK house price is £226,185 according to the UK House Price Index (HPI) for July 2017.

*** In order to calculate this, JLT had to make a number of assumptions, i.e. Hilary and Max have an annual salary growth of 1%; the values are calculated at age 55 for both individuals; the fees are 0.75% per annum.


Notes to Editor


JLT Employee Benefits

Corinne Gladstone, PR Manager| T: +44 (0)20 7895 7705| E:

Smithfield Consultants:

Fay Israsena | T: +44 (0)20 3047 2529| E: 

About JLT Employee Benefits

JLT Employee Benefits is one of the UK’s leading employee benefit providers offering a wide range of benefit and pension services, including administration, actuarial and pension consultancy, investment, Self Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSASs) administration, flexible benefits, healthcare, benefit communication and financial education.

JLT Employee Benefits employs over 2,200 professionals throughout the UK and in 2015 had revenues of £167.4m in UK & Ireland.

Pensions and employee benefits companies within the JLT Employee Benefits group of companies include: JLT Benefit Solutions Ltd, Profund Solutions Limited, JLT Wealth Management Limited, JLT Investment Management Limited and Independent Trustee Services Limited. JLT Employee Benefits is part of Jardine Lloyd Thompson Group plc.

About Jardine Lloyd Thompson Group plc

Jardine Lloyd Thompson is one of the world's largest providers of insurance and employee benefits related advice, brokerage and associated services. JLT's client proposition is built upon its deep specialist knowledge, client advocacy, tailored advice and service excellence.

JLT is quoted on the London Stock Exchange and owns offices in 41 territories with some 10,600 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 141 countries.