Half of AVC schemes offer members a choice of more than 30 portfolios in which to invest, with three quarters providing external fund links
Investment choices for AVC contracts have become so complex that trustees run the risk of members being put off investing, the Hewitt Bacon & Woodrow survey found.
Research from the group points out the average AVC scheme currently offers members a choice of 13 different funds, up from 11 last year.
Chris Cairns, AVC specialist at the group, said: 'Providers have wholeheartedly embraced the idea of offering choice, and half now offer more than 30 funds, with three-quarters offering external fund manager links.
'Last year, only 30% of providers offered external links. This wide range of funds is in danger of overwhelming members. Trustees need to consider offering a more sensible, limited choice of investment options,' he said.
Too much choice may lead members to decide not to invest, Cairns noted. This is reflected in a much smaller number of funds actually used by members and the lack of growth in the average level of AVCs paid over the past three years, he said.
Confusion over global equity vehicles has grown over the past year, with the survey showing funds labelled global equity having UK equity holdings between 0% and 70% and US weightings from 5% to 66%.
Kevin Wesbroom, an analyst at Hewitt Bacon & Woodrow, said: 'We normally define a global equity fund as having 100% in equities and those equities being all around the world, including the main geographical regions such as the UK, US, Europe and the Far East.
'Overseas equity funds are more likely to exclude the UK but not always.
Members may be seeking a global fund in which they will have a spread of investments around the world, or they may be looking for a majority invested in the UK. There are funds out there to suit both needs but the problem is they are probably all called Global Equity.'
According to the pensions consultant, the rates of return on the various funds has differed considerably over the past year, although for the second year running, managed funds have been both the worst performers and the most volatile.
Managed funds have produced a negative five-year median and, for the first time in the 21 years since the survey began, a negative median over 10 years, with a return of -0.1% for the 10 years to 1 January 2003.
When looking at cash unit-linked funds and traditional deposit-based AVC accounts, the survey shows a continued blurring of the differential between their respective returns.
Median returns show deposit-based contracts are still producing higher returns than cash funds but the gap is narrowing.
Cairns said: 'For example, for the first time in the 21-year history of the AVC survey, a unit-linked cash fund has provided the highest return over five years rather than a deposit-based contract and many of the unit-linked funds have outperformed traditional building society funds.
'However, over five and 10-year periods, cash funds can still be found at the bottom of the chart, with two funds giving virtually no investment return over five years. This reflects the effect of fund charges and relatively low interest rates.'
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