Saving with Group or Individual Personal Pension Schemes: How Much Difference Does It Make?

57 Pages Posted: 21 Feb 2017 Last revised: 26 Jun 2019

See all articles by Anna (Ania) Zalewska

Anna (Ania) Zalewska

University of Bath - Centre for Governance, Regulation and Industrial Strategy; School of Management

Date Written: January 31, 2019

Abstract

The role of employers in setting up and overseeing pension schemes offered to their employees and the quality of investment schemes offered to individual investors have attracted considerable attention in the finance literature. This paper adds to the debate by showing that institutional differences in setting up DC personal contracts with pension providers result in statistically and economically different performance of pension investments. Using a large sample of UK personal, non-occupational personal pension funds, the paper compares group personal pensions (GPPs, i.e. schemes where employers choose pension providers, facilitate contract setting and monitor fund performance) and individual personal pensions (IPPs, i.e. schemes offered directly to the general public without any ‘informed’ third party’s involvement and monitoring) over the period 1990-2015. It shows that the GPPs outperformed the IPPs. It also shows differences in performance of IPP and GPP benchmarks and in performance of the IPPs and the GPPs against their benchmarks. Although the type of benchmark chosen can be informative of performance, a higher performing benchmark is not a signal of greater performance of the fund. The results highlight the importance of employers’ helping facilitate the setting up of funds and their consequent monitoring. It also calls for more protection for individual investors – greater involvement of regulatory bodies may be necessary.

Keywords: pension funds, defined contributions, performance, benchmarks, individual investors

JEL Classification: G22, G23

Suggested Citation

Zalewska, Anna, Saving with Group or Individual Personal Pension Schemes: How Much Difference Does It Make? (January 31, 2019). Available at SSRN: https://ssrn.com/abstract=2920818 or http://dx.doi.org/10.2139/ssrn.2920818

Anna Zalewska (Contact Author)

University of Bath - Centre for Governance, Regulation and Industrial Strategy; School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
+44 0 1225 384354 (Phone)
+44 0 1226 384354 (Fax)

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