UK - The move to scheme-specific benchmarks will increase the need for additional trustee training, consultants claim.
Hewitt Bacon & Woodrow said the vast majority of large and medium-sized schemes had already switched from peer group benchmarking, with the trend now filtering down to small schemes.
But while this was seen as a positive move for schemes, Hewitt associate Anthony Ashton warned it “raised the bar” of expectations of trustee competence.
He said: “Peer group benchmarks are the easy option for trustees but do not reflect the risk within an individual plan. Scheme-specific strategies mean the fund has to be managed on a more professional basis – this makes trustee training all the more important and we expect to see further requirements in legislation.”
Mercer Investment Consulting said its 2004 asset allocation survey found that less than 7% of clients with assets in excess of £25m still used a peer group benchmark. Plan-specific strategies ranged from 100% invested in bonds to 100% in equities.
Mercer claims each set of trustees had their own reasons for adopting a benchmark considerably different from their peers. It said investment priorities had shifted over a number of years from being largely focused on return maximisation towards return generation within a risk management framework.
Lane Clark & Peacock investment partner Steven White said trustees of all but the smallest pension funds should adopt scheme-specific benchmarks and take on the extra responsibilities.
He claimed that as more schemes moved away from peer group strategies, the group itself had become smaller and less representative. The Myners review of institutional investment practices also reinforced the need for an individual investment objective for schemes.
White said: “Implementing a scheme-specific benchmark may result in slightly more initial administration when setting up arrangements with an investment manager, but ongoing benefits – in clarity and risk control – are likely to exceed ongoing administrative costs.”
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