Cost controls and competing demands from defined benefit (DB) schemes are causing the majority of pension fund fiduciaries to fail in meeting their governance targets for defined contribution (DC) schemes, warns Watson Wyatt.

The financial consultant has launched a study of 60 large UK and Irish companies, The future of DC governance, which shows that fiduciaries currently focus most of their time on operational governance, particularly administration. However, their aim is to focus on qualitative activities, such as identifying and managing risks, investment strategy and member communication.

Gary Smith, senior consultant at Watson Wyatt, commented: "The time is fast approaching when DC assets will exceed DB assets in the UK and when members of DC schemes outnumber those in DB. It is therefore right that appropriate resource is allocated to the governance of DC schemes to ensure members get the most value possible from these typically less-generous arrangements."

Ninety per cent of respondents believe that good governance assists in managing the risks faced by fiduciaries, sponsors and members, and around 80 per cent said income in retirement can be improved by good DC scheme governance.

"Fiduciaries increasingly believe they should be doing more to help DC members and clearly want to focus more on qualitative approaches. There is an acknowledgement that added value and risk management are the two main factors focusing their minds when prioritising the allocation of scarce resources. We would agree that investment is the area where good governance can add the most value and where members struggle most."

The research showed that clear responsibility, accountabilities and management, an explicit decision-making process and the separation of governing and managing functions are key attributes associated with strong governance.

- Pensions Age July 2009

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