UK – The proposed National Pensions Savings Scheme could in effect be a giant ‘multi-manager’ fund, the Investment Management Association says.

And it could use “tried and tested” methods already found in the institutional arena, the IMA says.

The idea of personal pensions accounts was one of the key proposals of the Pensions Commission.

“There will be competition to run the default fund,” the IMA said in a parliamentary briefing. “The NPSS Board would appoint managers in the same way that the institutional investment management market operates now: managers would compete for mandates, which run for a fixed term after which they would have to be re-bid.

“By separating fund management from account administration, underperforming manages could be fired without major disruption.”

And the “danger of underperformance” by individual managers could also be mitigated by appointing a number of managers to run different components of the default fund – “effectively introducing a ‘multi-manager’ approach”.

There would also be a competitive process to handle the administration of the scheme, to ensure value for money.

“These processes – based on tried and tested procedures for occupational pension schemes – will provide much more effective competition than making choices simply on the basis of consumer brands”

Speaking at today’s Department for Work and Pensions summit on pension reform, IMA chief executive Richard Saunders emphasised that NPSS would need an independent board, accountable to Parliament.
This would also to allow investment decisions to be taken by experienced investment professionals from the private sector.

And it would be essential to ensure a good default fund with responsibility for design and asset allocation in the hands of the NPSS board.

Saunders argued that the administration of the NPSS should be a “single, central platform, separate from investment management”.