UK equities and the performance of DC pensions

One of the main arguments in the debate over whether UK pensions should invest more in UK equities is that doing so would undermine returns for millions of people. The short answer from this paper is that many DC pension providers seem quite capable of undermining returns on their own, and that a range of UK-weighted portfolios would have performed in line with or better than most of the industry.

New Financial relies on support from the industry to fund its work. Our reports are available to New Financial member firms, government and regulators, and the media. If you would like to enquire about membership or receiving a copy of the report, please click here

New Financial members, governments and regulators, can also access our complete research archive including this report here

We ran four simple UK-weighted portfolios over the five years to the end of 2024 and compared their performance with a sample of 18 DC pension providers. Given the relatively poor performance of UK equities over this period, we were surprised by the outcome:

• In each portfolio, there was an annual ‘cost’ of around 1.3 to 1.6 percentage points in performance compared with a strictly global market weighted allocation but…

  
  

• …all four of the UK-market weighted portfolios performed better than the majority of DC pension providers (one of them beat 15 of the 18 providers)

  
  

• …and all four of them beat the average annualised returns of 7.9% across the industry (by between 0.7% a year and 3.4% a year).