SEI Study: More than half of schemes targeting the wrong benchmark for success

Nearly a Quarter of Trustees Do Not Know Whether or Not Their Scheme Is Underperforming

 
Over half of UK Defined Benefit pension schemes are using a benchmark for success that is unlikely to serve the interests of the scheme or its members according to research released by SEI (NASDAQ:SEIC). Fifty-two percent of Trustees surveyed stated that they only target an investment return and do not use a funding level benchmark. It is widely understood that pension schemes need to understand not only investment returns, but also their scheme’s liabilities. Ignoring liabilities may lead to suboptimal investment decisions being made without the full knowledge of the scheme’s funding level position.
 
The research also revealed that many trustees are unclear of the current status of their scheme against their benchmark with just over a fifth – 21 percent – unaware of whether they are under or over performing. Communication of objectives may also be an issue with 4 in 10 trustees feeling that the investment objectives and preferences of the employer sponsor are not communicated very clearly.
 
Patrick Disney, Managing Director of SEI’s Institutional Group, said:
 
“Employing a funding level benchmark is the most effective means of monitoring a scheme’s performance. To focus solely on investment performance provides just half of the story, ignoring the significant impact of liabilities. These research statistics further reveal that Trustees are being forced to operate within a governance framework that is in dire need of reform. The industry needs to move towards a different, more accountable, governance model. In doing this, Trustees can partner with their advisers and work towards a common funding level goal which is transparent and seeks to benefit pension scheme members.”
 
Methodology
IFF Research telephone interviewed 100 trustees of DB schemes for SEI in September 2015. Of those surveyed 46 percent of the schemes were classified as small (£15m – £99m AUM), 33 percent were medium (£100m – £499m), and 21 percent were large (£500m+). The research was conducted under the supervision of Dr. Iain Clacher, Associate Professor in Accounting and Finance, Co-Director of the Centre for Advanced Studies in Finance (CASIF) and Co-chair of the Actuarial Profession’s and cross-practice working party on behavioural finance.
 
To obtain a full copy of the research please visit SEI Group Think Research 2016 or email cdeutsch@seic.com.
 
About Fiduciary Management
SEI’s Institutional Group is the first and largest global provider of Fiduciary Management services. The company began offering these services in 1992 and currently has more than 470 fiduciary management clients worldwide. SEI became the first to offer a fiduciary management solution that integrates assets, liabilities and overall organizational finances by incorporating risk management, investment advice, implementation, oversight, trust/custody, and a unique modelling process.
 
About SEI’s Institutional Group
SEI’s Institutional Group is one of the first and largest global providers of outsourced investment management services. The company delivers integrated retirement, healthcare and nonprofit solutions to 470 clients in eight countries. Our solutions are designed to help clients meet financial objectives, reduce business risk and fulfill their due diligence requirements through implemented strategies for the management of defined benefit plans, defined contribution plans, endowments, foundations and board designated funds. For more information visit: seic.com/institutions.
 
About SEI
SEI (NASDAQ:SEIC) is a leading global provider of investment processing, investment management, and investment operations solutions that help corporations, financial institutions, financial advisors, and ultra-high-net-worth families create and manage wealth. As of December 31, 2015, through its subsidiaries and partnerships in which the company has a significant interest, SEI manages or administers $670 billion in mutual fund and pooled or separately managed assets, including $262 billion in assets under management and $408 billion in client assets under administration. For more information, visit seic.com.
 
This information is issued by SEI Investments Europe Ltd, Alphabeta Building, 14-18 Finsbury Square, London EC2A 1BR which is authorised and regulated by the Financial Conduct Authority.