Younger defined contribution (DC) pension scheme members, around 30 years from retirement, have benefited from their higher exposure to equity markets over the past year, Hymans Robertson’s DC Provider Report has suggested.

The report assessed member outcomes of default investment strategies of master trusts and group personal pensions over the past five years.

In particular, it examined three sample members at three different stages of the retirement savings journey, and looked at how their incomes have changed since 2019.

The analysis first looked at a member in the growth phase (around 30 years from retirement), who has experienced positive, but varying, levels of performance and said that this difference could be as much as 8 per cent per year, depending on their provider.

The report also showed that the more assets the members in this growth phase allocated to equity the better they fared.

The report found that for members in the consolidation phase (around 10 years from retirement), investments have recovered from the period of volatility in the bond market during 2022 and are now benefitting from strong returns in both equity markets and falling yields.

The firm said that most members in this phase have begun to de-risk their investment strategy.

Meanwhile, for those in the pre-retirement phase (around five years to retirement), reduction to risk was the norm to provide certainty up to and throughout retirement.

The consultancy said that as DC pot sizes are expected to become larger over time, there will be a growing demand for more pre-retirement and post-retirement strategies.

Hymans Robertson head of DC provider relations, Shabna Islam, said that returns have been "strong" within the equity market over the past 12 months, and it is “particularly pleasing” to see that younger members have gained from their higher allocations to equity, as technology and artificial intelligence related stocks have dominated the markets.

She noted that the sector, as a whole, has consistently outperformed over the last few years and the firm expects further developments in provider defaults with the introduction of private market assets in strategies.

“If this trend continues, we believe providers will begin introducing additional premium defaults at an increased cost point – incorporating a higher allocation to private assets by as much as 10-15 per cent,” she continued.

“Over the past few months, we have witnessed the attention given to the DC market from the government, with the recent consultation on unlocking the UK pensions market for growth.

“Consolidating smaller pension funds into megafunds, with £25-50bn of assets under management, will have a large impact on DC pension providers and their default investment strategies.

“Consolidation will have positive implications, such as the opportunity for more private market investment, ultimately leading to better outcomes for scheme members.

“However, small schemes should still be able to innovate and drive positive change.”

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