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Member outcomes: three steps to improve your DC fixed income portfolio

  • 22 April 2021 (15 min read)


  • Fixed income remains a vital part of DC members’ investments as they reach retirement age
  • Passive UK corporate bonds often make up the bulk of this allocation, however we believe this approach is structurally inefficient and could be detracting from realised member outcomes
  • The cumulative impact of turnover and forced selling can have a material, negative impact on passive strategy performance, well-designed Buy and Maintain credit strategies seek to overcome this issue
  • Adopting a Buy and Maintain approach can also unlock the ability to implement climate-aware investments that help schemes better meet their regulatory and member outcome requirements
  • Using a global credit universe to implement such a climate-aware strategy could have a cumulative positive impact by generating stable growth and providing a steady income


Fixed income assets are a core part of every Defined Contribution (DC) member’s journey as they get close to retirement. Even with the appetite for annuities dwindling, fixed income can still range between 30% to 60% of the strategic asset allocation for large master trusts and single trusts1 . One of the reasons for this are the “pension freedoms” introduced in 2015 by which individuals can access their DC pensions savings at age 55. Providers must be positioned for a wide range of member behaviours at retirement. The bonds, often corporate, are required to fulfil the ‘holy trinity’ of investing – capital growth, preservation of value and paying an income. Yet we still see many passive UK corporate bond mandates within many default ranges - an approach we believe to be ineffective for meeting member needs. This stance is worth reconsidering as investments continue to move up the agenda and asset flows in late stage DC become significant.

In recognition of the structural shortfalls, lack of flexibility and, in our opinion, inability to implement climate-awareness into passive UK corporate bonds, DB Pension Funds and Insurance companies have been moving away from these allocations in recent years. Further regulatory press for larger schemes will only accelerate this trend. We encourage UK DC schemes to take the same approach and consider how this important allocation can be improved. We set out three possible steps below which, when implemented together, could have a cumulative positive impact on members’ pensions to help them grow and realise their retirement needs.

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Why invest in our buy and maintain credit strategy?

Buy and Maintain is our flagship fixed income strategy with fully-integrated ESG factor analysis, helping our clients access the investment grade credit markets

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