Types of defined contribution investments
After being enrolled in a workplace DC scheme, scheme members are placed automatically into a scheme’s default fund. These are convenient funds that are typically managed with a long-term investment strategy where higher-risk assets are prioritised the further a member is from retirement, to grow their total pot. When approaching their pre-set retirement age, lower-risk assets like bonds or cash are invested in to limit risk regardless of an individual’s retirement income choices.
For scheme members wanting more control, many providers offer a choice of funds that members can select which offer different risk levels and investment styles. These can be tracker funds (which follow market indexes like the FTSE 100 or global equivalents), specialist funds which invest by geographies or technologies for example, and mixed funds which are ready-made investment solutions which can have distinct risk profiles. Savers can also invest in individual companies or alternative assets through a Self-Invested Personal Pension or SIPP. In Spring 2025, 17 major UK DC pensions providers signed the Mansion House Accord, voluntarily committing to invest 5% of their members’ assets into private markets by 2030. This includes asset types like real estate, private equity in UK businesses, and major infrastructure projects. The change reflects pension providers’ desire to improve retirement outcomes and drive long-term investment in UK growth as barriers to these investments decline.
Retirement planning
A significant factor that underpins a scheme member’s pension investments is their plan for retirement. DC scheme members can choose between taking cash lump sums, maintaining investments and drawing an income, or purchasing an annuity. A pension schemes member can opt for a combination of these choices.
As a saver approaches their retirement age they may want to shift to low-risk, more liquid investments, depending on when and how they want to take their pension. However, if a saver chooses to keep portions of their DC pension invested to draw an income, then they still may want to invest in some assets which accrue their pension additional value.
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Resources
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FAQs
How are DC default funds invested?
You can contact your pension provider directly or use your provider’s website or app to research and decide your pension investments. Providers often provide a list of funds that you can choose to invest in. Each fund is typically accompanied by a description of the fund’s investments and performance history.
Can my DC contribution levels change?
If you want to invest more into your DC scheme pension you can invest more by increasing your employee contribution levels. You can do this by contacting your current employer
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