UK pension schemes are increasingly committed to delegated investment strategies as trustees and sponsors are being put under increasing pressure, an Aon Hewitt survey has found.

According to the consultant's Delegated Investment Survey 2013, 36% of the 275 defined benefit (DB) schemes that responded have appointed a fiduciary provider, which is an increase from 18% in 2011.

Aon Hewitt said that it anticipates that there will be a 40-50% year-on-year increase in the number of schemes electing to delegate their investment strategy.

Rising scheme deficits, market volatility, increasing investment complexity and the growing number of scheme closures to new entrants and future accrual are factors, which are putting pressure on trustees and sponsors, Aon Hewitt said.

Sion Cole, Aon Hewitt partner and head of client solutions, said: "In the last three years, 5% of all the DB schemes in the UK have moved to a fiduciary management approach. This is a remarkably quick uptake within an industry which is typically much slower to move.

"We believe this momentum will continue and we expect to see 25% of all UK DB pension schemes committed to delegated investment within the next five years. Delegating investment is no longer a new concept. It is now an established solution to the challenges that face the pensions industry.

"With the number of success stories where fiduciary management has improved funding levels, reduced volatility and enhanced the risk/return profile of schemes' portfolios, it is not surprising that trustees are turning towards it in growing numbers - all with the ultimate aim of offering better security to their members."

The survey, which was completed by 275 DB schemes representing £130bn of assets, revealed that the principal driver behind the growing demand for delegated services has been the desire of trustees to increase their access to the expertise of investment professionals.

Cole said that by delegating their investment strategy to a trusted third party, trustees can ensure that their scheme's investments are proactively managed by those with the knowledge and resources to do so.

By outsourcing its investment strategy to a fiduciary provider, a scheme can move into new assets faster and more efficiently than under traditional frameworks, while benefitting from the fee savings and preferential terms that many of the leading providers are able to negotiate on behalf of their clients with underlying managers, Cole said.

He added: "This cost efficiency and access to expertise is especially appealing to small and mid-sized schemes where trustees often have limited resources to handle their portfolio quickly and effectively. For these schemes, the fiduciary approach opens up a broader range of investment strategies which were previously only viable for larger schemes."

First published 09.09.2013

monique_simpson@wilmington.co.uk