Briefing Notes

Briefing Note 73 - Defined Contribution default funds and investment governance

Since automatic enrolment — mainly into DC pension schemes — was first introduced in 2012 there has been an increasing focus on the investment governance of DC pension schemes, and in particular of the default funds that the majority of DC savers will be invested in.

This Briefing Note looks at some of the issues surrounding the investment governance of DC pension schemes and, in particular considers how new tools — such as DC strategy benchmarks — might be used to improve standards of governance.

It finds that there is widespread support for the development of tools to improve transparency and allow better monitoring of performance. A strategy level benchmark as opposed to a fund component benchmark could provide greater understanding of the glide-path and real member experience. The use of benchmarks is one way to help improve the governance of DC pension funds, and especially default funds, an area where there is increasing focus.

The PPI is grateful to FTSE Group and Elston Consulting for hosting a roundtable to discuss the Briefing Note.