Default investment strategies used by major defined contribution (DC) master trusts have become increasingly growth-focused over the past five years, as providers adapt to how savers now access their pensions, analysis from Isio has revealed.

The firm’s latest review of the investment performance and asset allocation of 15 major UK DC master trust providers found that higher allocations to growth assets have become more common across both the accumulation and retirement phases.

According to the report, providers have steadily increased allocations to equities across global, regional, and small-cap markets within off-the-shelf default strategies, alongside a gradual introduction of private-market investments.

The findings reflected growing confidence that members can tolerate short-term volatility in pursuit of stronger long-term outcomes, with evidence from recent market shocks suggesting limited panic-driven disinvestment by savers.

The analysis also highlighted that environmental, social and governance (ESG) considerations were now more deeply embedded within default strategy design, with many providers enhancing sustainability characteristics while targeting competitive risk-adjusted returns.

However, the most significant evolution has taken place in retirement strategies, as schemes shifted away from an annuity-focused model towards one that better reflected the growing use of drawdown.

Indeed, five years ago, many providers held between 10 per cent and 30 per cent in equities as members approached retirement, while significant allocations to cash and traditional bonds reflected the expectation that savers would purchase an annuity.

Today, the report found that average equity exposure in retirement strategies has increased to around 30 per cent, signalling a stronger focus on maintaining growth potential as members transition into drawdown.

Meanwhile, cash allocations have generally declined as fewer members target full annuity purchases or immediate encashment of their savings.

Instead, providers were increasingly designing strategies to support sustainable income throughout retirement, which may last for several decades.

Alongside these changes, diversification within fixed income has broadened, with greater use of multi-asset and securitised credit and a shift towards shorter-dated bonds to help manage interest-rate sensitivity while accessing additional sources of yield.

Commenting on the findings, Isio head of DC master trust research, Mark Powley, stated the direction of travel in default strategy design had become increasingly clear.

“Five years on from our first peer group comparison, the direction of travel is clear. Default strategies have become more growth-focused and more closely aligned to how members are actually using their pensions,” he said.

“Providers have responded to evidence around member behaviour and evolving retirement patterns, increasing equity exposure where appropriate and broadening diversification across credit and private markets.

"The result is a more balanced approach that seeks to support long-term sustainability as well as short-term stability for DC savers.”

Powley also suggested that growing confidence in savers’ ability to remain invested through periods of volatility had enabled providers to take a more strategic approach to portfolio construction.

“What’s particularly notable is the increased confidence in members’ ability to stay invested through periods of volatility," he said.

"That has allowed providers to think more strategically about long-term return generation, rather than building portfolios around the fear of short-term market shocks.

“As retirement behaviours continue to evolve, we expect default design to keep adapting in measured and thoughtful ways.”

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