For many in the UK, the topic of pensions sits a paltry last to other more ‘grabbing’ matters – sport, entertainment, holidaying and fashion etc.

Unfortunately though in Britain, an increasingly pressing issue is finding the right investment structure for defined contribution (DC) pension plans, as DC assets swell and defined benefit (DB) schemes close.

It is made more difficult by the fact most ordinary members of DC funds tend not to make an active decision, but through apathy rely on their schemes’ default fund.

A recent roundtable of scheme representatives, fund managers and consultants threw up a few interesting points to ponder on this topic.

One was the importance of communication to DC members.

The great danger is that members pay little attention to pension communications, assuming everything is alright and then, very late in the day, realise that their pension will be way below expectations.

One scheme manager described this realisation happening, in many cases, at age ‘sixty four and a half’.

Another observed that this was not surprising, given that the average UK newsagent in working class neighbourhood probably stocks more magazines on tattooing than on finance and investment.

The lack of investment awareness among many scheme members means that DC pensions have to be designed very carefully.

For example, too much choice confuses members, meaning that no active decisions are made. With an estimated 80% of DC members relying on their scheme’s default fund, the use of pure equity funds, or lifestyle funds that move from equities to bonds over time, is now seen as flawed by many.

So one approach is to make sure the default fund has the best chance of producing good returns for members, without too many unpleasant shocks.

In order to do this, there is growing interest in diversified growth funds for DC schemes.

These funds aim to produce a steady return, ahead of inflation or the return on cash, regardless of overall market conditions, by investing in a wide range of assets.

These assets could include global equities, property, private equity, commodities, hedge funds, active currency funds and fixed income.

By using diversification, a diversified growth fund can hope to produce equity-like returns with bond-like volatility.

Diversified growth funds are becoming more popular for institutional investors, while the retail equivalent is an absolute return, or target return, fund.

One issue is that this type of fund can be expensive, so some fund managers are developing cheaper ways of getting passive exposure to the different underlying strategies.

Just as DC funds are exploring the use of what some investment experts call ‘exotic beta’, so more DB funds are looking at using uncorrelated investment strategies.

In both cases, there is a nagging sense that equity investment has produced too much volatility and not enough performance.

One difference is that DB pension funds tend to use ‘completion portfolios’ of, say, 10% of overall scheme assets for diversified growth strategies. For DC schemes, the proportion invested could be much higher.

DC investment has been the poor relation of pension fund investment in recent years.

More assets are in DB funds and DC pension issues tend to occupy a small amount of trustee’s time.

But this looks likely to change as DC assets increase and companies and members realise the importance of DC pensions.

Hopefully, this will lead to fewer members getting an unpleasant pension shock when they are almost at retirement.