Premier Farnell case study
DC investment strategy
Designing and implementing a revised default fund
The situation
Prior to automatic enrolment, the Premier Farnell UK
Pension Scheme had a DC section with £30 million
of assets and around 1,500 members, including
600 active members. The company had a further
800 employees not in any pension scheme.
The existing default was a typical arrangement
of passive global equities, transitioning to gilts
and cash over a five-year period to retirement.
The Trustees wanted to review the default
approach to reflect current thinking and the
profile of the Scheme membership, allowing for
800 new members following the implementation of
automatic enrolment.
The Trustees wanted to achieve investment
improvements in a way that was consistent and
proportional to the size of the Scheme’s membership
and assets.
The solution
The Trustees asked Towers Watson’s DC team to
conduct the review and give advice on the design
and implementation of a revised default fund and
related fund range.
Towers Watson undertook the assignment using
a structured consulting process, comprising the
following steps:
1Training on current developments and investment
strategies in DC investment – focusing on the
Trustees’ current governance capacity and
investment management structures, together
with considering future constraints on investment
strategy changes.
2Membership analysis to understand the
demographic profile – including the impact of key
drivers on individual investment risk tolerance
and objectives, for example salary differentials
and contribution habits.
3Written report, with recommendation for
change – in particular, raising awareness of
the current investment strategy’s consistency,
or otherwise, with the membership’s expected
investment preferences.
4Project management of the change – including
implementation and communication strategy
advice to ensure a smooth, practical transition
was achieved.
By following this structured approach, the Trustees
and Towers Watson were able to ensure the revised
strategy reflected best practice but in a way that
was appropriate to the size of the Scheme and the
Trustees’ governance budget.
The result
The revised default strategy Towers Watson helped
Premier Farnell to put in place was more appropriate
for the Scheme’s membership and consistent with
their needs and objectives. The new default had the
following characteristics:
• A more diversified growth stage, although
delivered using low-cost passive funds.
• An extended lifestyle glidepath aimed at better
management of the risks as the member
approaches retirement.
• Improved matching of the members’ observed
preferences for annuity choices with the
pre-retirement investment fund.
• An enhanced self-select range, offering members
a distinct choice across a range of funds with
diverse risk/return characteristics.
The whole exercise was undertaken at a cost of less
than 0.75% of the fund assets – including all advisory
fees, investment transition costs, communication
materials and administrative changes.
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TW-EU-2013-35604. March 2014.
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Towers Watson DC consulting
Towers Watson’s DC consulting team provides
advice to 900 different DC schemes in the UK.
The advice and support delivered by the team
is either provided as the core of the services
offered to the client, or in conjunction with other
services provided (for example, where the main
service provided is actuarial or defined benefit
investment advice). This can range from a
pure DC pension arrangement to DC top-ups,
such as Additional Voluntary Contribution
arrangements. As a result, the size of DC
arrangements we advise varies significantly,
ranging from small (less than £1 million in
assets and a handful of investors) to very large
in DC terms (over £1 billion with more than
10,000 members).
“The Trustees and Towers Watson were
able to ensure the revised strategy reflected
best practice but in a way that was appropriate
to the size of the Scheme and the Trustees’
governance budget.”
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