A consultation paper on the Investment Governance Group's (IGG) draft investment government principles and best practice guidance for trust-based and contract-based defined contribution (DC) work-based pension schemes has been welcomed by the industry.

The IGG, a joint industry and government forum, was formed following a review by the National Association of Pension Funds (NAPF) review and government consultation into the Myners principles, is tasked with implementing an industry-led framework for the application of these principles.

"With the publication of these principles for consultation the group sets out its view of the critical investment governance issues for DC schemes," said Bill Galvin, chair of the IGG.
The principles and accompanying guidance have been tailored by the IGG's DC subgroup to maximise the potential for a positive outcome for members, through strong investment decision-making and governance.

Victoria Nye, from the Investment Management Association, chairs the subgroup, which comprises of scheme member representatives, trustees, consultants and providers, trade association and government officials.

Nye commented: "As the growth rate of DC provision accelerates, we must put individual members' future welfare at the heart of our efforts to encourage best practice in investment decision-making and governance.

"This framework has been developed as a useful tool for all stakeholders in workplace pension schemes. It is not intended to be prescriptive, or be regarded as regulation, but simply to encourage and support employers and trustees in implementing better investment governance in their DC schemes, whatever the size and type."

AEGON supports the principles, and said it will help trustees, employers and advisers to strengthen their investment decision-making: "We support IGG's work in setting 'best practice' standards for both trust-based and contract-based schemes and believe it will improve member outcomes for the larger schemes with an engaged employer," said Rachel Vahey, head of pensions development.

"The consultation has tried to nail down accountability for investment-making decisions. This is straightforward for trust-based schemes as, once the scheme has been set up, it is always the trustees' responsibility to make all the investment governance decisions. It's not so straightforward for contract-based schemes."

Vahey added that it is too simple to place the accountability for all investment governance decisions on the employer. "Accountability is often a triage approach, split between the employer, adviser and provider depending on who takes on what role at what time. And for smaller employers there may be no adviser to help with investment governance decisions, so the employer may rely almost totally on the provider," added Vahey.

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