PP Campaign for Better DC Default Options

AllianceBernstein defined contribution investments director Tim Banks:

It is time for a change in thinking in DC investment default design – we need an evolution from traditional strategies to better serve member needs. This campaign can play a part in achieving that objective.

Aon Hewitt head of UK DC team Simon Davies:

It has never been more important to get the choice of default investment option right and we welcome this campaign, which can help all of us create better outcomes for DC members, and at the same time reduce the risk for scheme sponsors.

Barings head of UK and international institutional sales Andrew Benton:

Poor DC default design is one of the major issues that the industry needs to address… We have to work harder to narrow the gap between the ‘best of breed’ solutions offered by leading DC schemes and the passive default options that have dominated for the last decade.

DCisions business development director Nigel Aston

We observe a wide spectrum of opinion and results [with regards to default funds], but a lack of objective benchmarking and scrutiny. The more enlightened asset managers, consultants and providers are beginning to devote the time and resource that this critical aspect of scheme design demands; we welcome any campaign that encourages that focus and results in better outcomes for DC customers.

Fidelity head of DC and workplace savings Julian Webb:

Given that auto-enrolment is about to bring millions of UK employees into pension savings for the first time, it is hard to see a more important investment issue than the design of default options. There is room in the market for competing propositions, but quality and governance must always be of the highest standard – work is needed in this area to deliver the right outcomes for members.

Friends Life managing director of corporate benefits Colin Williams:

There has been consensus within the pension industry for years that default funds have to improve and the forthcoming launch of Nest and auto-enrolment will bring the issue to the fore. The search to find a solution is now pressing for more than the achievement of good governance.

Investment Management Association head of research and pensions Jonathan Lipkin:

The challenge of good default fund design lies at the heart of the DC investment process. As the UK DC market expands through automatic enrolment, now is the time to ensure that individuals have access to default strategies that effectively serve their needs.

The IMA has consistently supported the development of the DC investment governance principles by the Investment Governance Group and believes these provide a strong foundation for moving forward.

LCP principal Andrew Cheseldine:

It is important to have a good default because auto-enrolment will mean everyone will have to have a default fund. All the available evidence suggests that members who invest in the default obtain better outcomes at retirement than those who self select.

Saga director-general Ros Altmann:

About 90% of pension investors choose the default option because they don’t feel equipped to choose their own investments, which makes it absolutely vital that there are appropriate default options for people to choose and use.

Schroders head of DC 
Stephen Bowles:

There is a growing acceptance that DC members are unwilling to engage in active decision-making and therefore it is critical that a default provides a professionally led alternative.

Scottish Widows head of corporate pensions propositions Pete Glancy:

Good default options should be low cost but robustly governed, ensuring that outcomes over time are optimal in terms of potential performance but also that the level of risk to which members are exposed is appropriate to the membership of the scheme.

Society of Pension Consultants and Buck Consultants head of technical services Kevin LeGrand:

The industry needs to focus on improving default options. We’re on the cusp of auto-enrolment – the vast majority of people will go into DC schemes and the majority of them will go into a default fund. If we don’t ensure good outcomes for them then all the money being spent on auto-enrolment will be wasted.

Default funds should have a greater level of sophistication – we need to get away from the one-size-fits-all approach. You can still have a white label default fund for the member, but beneath that trustees need to put their members into categories and make sure they have appropriate investment strategies.

Standard Life head of pensions policy John Lawson:

Default funds are going to assume a brand new importance next year with the introduction of auto-enrolment. At the moment, these funds are competing on price which restricts a lot of them to passive funds and equity trackers, which are not suitable for most members’ risk appetite.

Price has been the wrong focus and has stopped default funds from accessing instruments to reduce volatility – the focus should be on value for money.

Xafinity Consulting principal consultant Ian Johns:

There are far too many members of schemes in default funds which are no longer appropriate and which have not been reviewed since inception. This reflects badly on providers, advisers, and employers alike and impacts just the type of individual who needs to be engaged with most when it comes to long term savings.

Zurich Corporate Pensions fund strategy director Jonathan Parker

The importance of investment strategy, along with other factors such as contribution rates and charges in the delivery of successful DC outcomes is clear, and efforts to bring the subject to the attention of trustees and employers will help generate new ideas and ultimately benefit members.