Tougher regulation has focused on two key areas in UK DC pensions—more robust governance of pension plans, and demonstrable value for money (VFM) for members. Both of these priority areas align naturally with the TDF approach.
- By investing each member's account into an appropriate TDF, fiduciaries can ensure there is full transparency into the underlying investments, including attribution of returns, risk and costs—both at the plan and the individual member level. This creates the basis for truly effective governance of the plan investments.
- With TDFs, because each member's investments are invested in a single professionally managed fund through to the point of retirement, there is no need for continuous switching between different investment vehicles. This eliminates both large numbers of unnecessary transactions and the costs, risks and administrative effort that go with them.
In short, TDFs create the opportunity to revolutionize pension plan governance and administration and so create better outcomes for members. The question is, where does that leave the consultants?
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