Trustees of defined contribution (DC) schemes should not be using default investment funds as an excuse to wash their hands of their responsibilities, according to Pitmans Trustees Limited (PTL).

The trustee firm believes that default strategies let DC scheme members down, with trustees allowing them to simply fall into them without being aware of other options for investment that are available.

"Lack of knowledge has to be the wrong reason to adopt any investment strategy," commented Richard Butcher, director at PTL.

"The inevitable results are; investment in funds that are not appropriate to the member's appetite for risk or retirement objectives. On top of this, most default strategies are passive. Some are never reviewed. As a result market changes impact the value of the members' fund in a very negative way. A more proactive strategy could protect against this."

Trustees must have a robust system of proactive and progressive default options that are actively managed, in order for trustees or governors of contract-based schemes to fulfil their obligations. "This requires active governance. The trustees should act as a proxy for the members.

"The regulator has said, more than once, that it is concerned about poor investment practice. Default strategies have a place and are important, but trustees should not be able to use them to cop out of their responsibilities," Butcher concluded.

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