Synopsis: The PPI has issued Briefing Note 73 – Defined Contribution Default Funds and Investment Governance.

The Pensions Policy Institute has issued Briefing Note 73 – Defined Contribution Default Funds and Investment Governance.

The issues covered in this Briefing Note were discussed at a Round Table event hosted by the FTSE Group and Elston Consulting, in January 2015, and the note reflects some of the issues that were raised by the Round Table participants.

The PPI points out:

 The importance of DC default funds should not be underestimated.

 By 2030 there could be around £480bn (in today’s earnings terms) invested in DC schemes, with up to 14 million active members4. In the mid-2020s around 90% of members could be invested in the default fund. Of these default funds, just over 60% of the assets are likely to be held in lifestyle strategies compared to just over 20% held in target date funds.

 The importance of the default is unsurprising, considering the low levels of member engagement in investment issues. There is a lack of interest in pensions and a lack of certainty around retirement plans. Participants’ responses to research suggest a lack of interest in their pension arrangements, despite the fact that they recognize that pensions are important. In particular, awareness of default funds and how these work is very low.

 Although the responsibility for good governance is clear, how to deliver that governance is not yet established.

 Benchmarks could improve investment governance if they are used appropriately.

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