Refining investment funds to improve future performance and simplifying the way they are presented to members is the key to better levels of defined contribution (DC) engagement, says Brian Henderson, senior investment consultant at Mercer.

The DC specialist delivered his message following the release of research by the consultant which found that while the majority of companies intend to focus on improving member understanding, only half of them actually intend to improve the investment efficiency of their scheme in the next two years.

"Beyond the effect of the credit crisis, research suggests that DC underperforms DB for a number of reasons," said Henderson. "A clear problem is members' lack of financial knowledge and aversion to risk - leading to poor investment performance over the longer term."

However, only focusing on increasing member understanding rather than improving investment efficiency means trustees and sponsors may be "missing a trick", he added.

The number of funds that are offered varies across schemes, with 13 per cent of participating sponsors providing less than six funds and 27 per cent offering more than 20 funds.

A default fund is offered by 90 per cent of companies, and lifestyle funds are the most common instrument, used by 80 per cent of respondents.

"Whilst derisking is important, it doesn't mean that members should miss out on the investment opportunities to be had. Trustees could review the lifestyle switching period to ensure members get the maximum potential return from their fund," Henderson concluded.

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