New generation of DC default funds driving better design and governance | Pensions and Lifetime Savings Association

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New generation of DC default funds driving better design and governance

10 September 2013

New research by the National Association of Pension Funds (NAPF) published today (Tuesday) provides  encouraging evidence that DC default funds are reviewing and overhauling their design and governance to deliver good retirement outcomes for members.

The Default Fund Design and Governance in DC Pensions report focuses on eight DC pension schemes that have created, reviewed or improved their default funds – including the Bank of America, Heineken and Trinity Mirror.  It highlights 15 default fund design trends, provides 15 practical tips on how to approach default fund design and identifies popular design features in the case studies.

The default fund design trends include a strong focus on driving value for money over lowest cost (with the average member charge being around 50 basis points); stripping out investment volatility from the default; and white-labelling of funds so that changes can easily be made in future. Popular design features include longer periods for de-risking, more flexible pre-retirement phases, and more tailored and engaging communications with members.

Mel Duffield, NAPF Head of Research and Strategic Policy, said:

“It is encouraging to see NAPF members leading the way in building the new generation of DC default funds over the past few years. Auto-enrolment is bringing in different types of scheme members, many of whom will be saving in a pension for the first time and will want protection from volatility in their investments. We are pleased to see so many employers and trustees rising to this challenge and managing to get a good, comprehensive deal for members on charges while keeping their investment risk down.”

The funds were also keen to share their experiences with others embarking on the review process, offering 15 practical tips on how to approach default fund design. These include warnings that the process can take longer than expected, with the average period being two years; that investment consultants and suppliers should be challenged to deliver against employers’ and trustees’ expectations; and that the design should be flexible enough to allow additional new features and investments in future.

Ms Duffield added:

“It was also interesting to see evidence of the benefits of scale, with larger funds using their buying power to achieve better deals with consultants and fund managers.”

Default funds in DC schemes are increasingly important as they are a requirement for all Auto-Enrolment schemes, and 84 per cent of savers today find themselves saving within the default where the investment strategy has been designed for them.

The Default Fund Design and Governance in DC Pensions report is being launched at the NAPF’s Investment Strategies Conference in London.

The Pension Quality Mark – the only benchmark to recognise a good quality DC pension scheme – is looking into raising standards around the governance of default funds by setting new minimum standards in 2014.

Notes to editors:

The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.

The NAPF was supported in this research by the DC Investment Forum (DCIF), a group of organisations formed to exchange ideas and develop initiatives to promote investment excellence in DC pensions in the UK.  Read Default Fund Design and Governance in DC Pensions

For further details on the Pension Quality Mark & the Friend of the Pension Quality Mark initiative: http://www.pensionqualitymark.org.uk/ and http://www.pensionqualitymark.org.uk/friendofpqm.php

Contacts:

Dee Sullivan, Head of Media and PR (interim), 020 7601 1717 or 07917 506 683, [email protected]

Aimee Savage Richards, Press Officer (interim), 020 7601 1718 or 07825 171 446, [email protected]