Defined contribution schemes will move increasingly to target date funds over the course of 2009 with greater emphasis on member engagement, industry experts claim.
Research into the US 401(k) system carried out by DC provider Friends Provident and consultancy firm TOR Financial has shown a clear trend of convergence between the US and UK systems.
Friends Provident Life and Pensions managing director Simon Clamp says: "Our primary purpose was to examine what was taking the market forward.
"When you look at the UK and US markets, you see there are quite a few similar challenges - how do you plan for future eventualities and getting the right return at the time of retirement?"
Clamp adds auto-escalation and target date practices were a positive step for workers.
"There's a clear gap between aspirations for retirement and the ability to provide that. We found there were a lot more people signing up to target date strategies," he said.
With a lack of auto-annuitisation in the US, the choice of an individual's 401(k) investment fund was more important, as it had to be able to provide continuing returns throughout retirement.
TOR Financial Consulting managing director David Harris said the industry was coming to terms with the limitations of this traditional fund selection practice
He said: "There has been a surge in [target date] funds - the industry has realised that 401(k) providers can't make each individual member into their own CIO."
Commenting on the role of personal accounts, to be launched in the UK in 2012, Friends Provident's Clamp said it was unlikely to make much of a difference to a large number of companies.
He added: "I suspect most employers would continue with their current benefits plans - it's part of the way to mange, motivate and retrain a skilled workforce."IFAonline
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