Call for attention on default options
EUROPE -Executives and trustees of defined contribution pension schemes are being advised to pay closer attention to the ‘default' option of their investment choices and ensure the offering is suited to the needs of members.
Dick Saunders, chief executive of the Investment Management Association, told delegates at the MultiPensions conference in London yesterday he was "very struck" by the amount of attention and "intellectual effort" paid to defined benefit pension arrangements but raised concerns about the quality of default investment options for DC schemes which may not deliver appropriate returns.
"In the Anglo-Saxon world we are seeing a market shift. And 80-90% of people [in DC] take the default option. This tends to be an index tracker but we are now in a situation where we have lifestyling default funds. I am not sure I would be happy to sell equities and buy bonds. One of the biggest challenges is going to be how do you invest default money in defined contribution schemes?"
In a separate session today at the same conference, Alex Waite, partner at Lane, Clark & Peacock, also said one of the issues he thinks pension executives should pay attention to - albeit his presentation looked specifically at creating international pension plans - is what would make a suitable default.
"When a company chooses a default option, you should assume three quarters of people are going to be in that plan. But if it doesn't do well, [members] are going to come back and say ‘ you chose it and you didn't deliver'. You need to be able to say you chose wisely," said Waite.
Consultants have been warning for some time a greater focus was needed on defined contribution investment choices, and on DC default investments.
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