UK - Almost a third of trustees are choosing inappropriate investment options for defined contribution schemes, a leading consultant claims.
Towers Perrin partner Mark Duke said many plans did not have enough choice and did not allow investors to build up portfolios to match their needs. Duke said: “You would find plans where an individual could not opt to put their money into just a UK equity fund.“
His biggest complaint was the common use of balanced managed funds. He said: “These are not fit for the purpose of a DC investor. They follow an investment strategy that maybe right for a big DB pot of money, but the risk is totally different and they will not change profile as members get older.”
Paul Myners, whose report last year highlighted the issue of trustee professionalism, has repeatedly argued that insufficient attention was being paid by trustees to key investment decisions.
CIS Pension and Death Benefits Scheme member trustee Brian Holden said: “Trustees should be conscious of the fact that DC schemes are essentially different vehicles with different liabilities. There needs to be a much closer relationship and dialogue between the trustees and the investment providers or the DC providers.”
The Towers Perrin survey also showed that the average contribution rate for DC schemes is 6% – less than half of the cost of a traditional final salary-linked pension. Almost one in three of those taking part in the survey had switched to DC contributions in the last year, with cost being the main driver for the change.
Respondents to the survey believed that the most effective ways of communicating investment issues were one-to-one counselling, computer-based financial education tools and group clinics/call centres. The findings were revealed in a survey of 185 large UK employers with trust-based or stakeholder plans by the consultants published last week.
By David Rowley
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