Survey: half of DC schemes failing investment duty
Data analysis: Consultants have raised concerns over a lack of investment focus from defined contribution schemes, after research found little more than half of schemes had recently reviewed their investment principles.
The Pension Regulator’s occupational governance survey showed only 54 per cent of DC respondents had reviewed their statement of investment principles within the past three years, despite it being a legal requirement for trust-based schemes. One in 10 said they had never reviewed them.
Survey findings
- Small DC schemes have the lowest levels of awareness of the regulator's trustee toolkit, with 60% using it.
- Fewer than half of the DC schemes surveyed said their trustee board had an "extremely" or "very" good understanding of charges.
- The most commonly used types of communication to members were statutory money purchase statements.
The regulator has warned that it will take "enforcement action where necessary" against schemes that do not fulfil their legal obligations.
Emma Douglas, workplace savings leader at consultancy Mercer, said investment did not appear to be a priority for a lot of trustees.
“Investment seemed to come further down the list [than other survey topics] and it needs to come right at the top in terms of where it is worth spending your time for getting better outcomes for members,” she said.
The survey sampled 454 schemes, including 152 trust-based DC arrangements with 12 or more members. It was conducted in two waves, which took place in September 2012 and February-March this year.
Kevin LeGrand, head of pensions policy at Buck Consultants, said the findings raised “lots of concerns” about DC investment.
“Regardless of the size, based on the information there are a number of [schemes] that aren’t adhering to the obligation to review the statement of investment principles every three years, which is a worry,” he said.
There was a limited amount the regulator could do to implement an effective generic process across the industry, due to the differences in the way schemes are run, said LeGrand.
A regulator spokesperson said the requirement to update, either every three years or after a major shift in policy, was covered in its draft DC code of practice, which is currently being updated.
"We are prioritising education and enablement to improve standards of DC schemes through the take-up of our principles and quality features – but we will take enforcement action where necessary in response to material breaches of pensions law," the spokesperson added.
The report also found the following:
- A quarter of schemes were unaware of the regulator’s six principles for good workplace DC.
- The proportion of DC schemes offering members only one fund continued to fall, with fewer than one in five schemes now offering a single fund.
- Schemes offering more than 50 funds to choose from increased from 3 per cent in 2012 to 11 per cent in 2013.
The fall in schemes offering only a single fund did not make default options any less important, according to Douglas.
“Small schemes potentially have slightly less time to spend on governance, so you think it would be more important to have a default fund for your members, and then focus on the governance of that default fund, rather than spreading your attention across too many,” she said.
Earlier this year, the regulator consulted on a new governance framework and set of 31 quality features for DC schemes, after its research found that smaller schemes were less likely to have robust governance in place.