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

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