PPI highlights need for more transparency in DC default strategy

Written by Jack Gray
06/09/2018

The need for greater transparency in defined contribution default strategies has been highlighted in a new report from the Pensions Policy Institute (PPI).

PPI’s report also called for clearer investment objectives as it found that default investment strategy objectives, costs and charges could be difficult to understand.

There are concerns from the institute that members and employers do not have enough information to hold trustees and insurers to account and assess the value for money they are getting.

PPI director, Chris Curry commented: “With the advent of auto-enrolment millions more workers are now saving into DC pensions, and most of them invest in a default scheme. More transparency on costs and charges and a clearer investment objective could help savers and trustees to better evaluate if the investment strategies delivers for members.”

PPI accuse some providers, market commentators and regulators of using confusing and sometimes contradictory language in relation to the default investment strategy.

Additionally, they discovered there was a lack of consistent metrics to measure performance and the bundling of services made it difficult to understand how much services cost.

AllianceBernstein head of multi asset solutions in EMEA, David Hutchins, said: “We believe a common language and governance process as well as clear disclosure of strategy performance versus investible benchmarks will ensure more accountability. Equally better transparency around costs of a strategy will help members and employers, in independently assessing its value for money.”

Despite the flaws, PPI found that default strategies are still a “good option for many DC savers” as they are relatively low cost, reduce the concern of inactivity from members and providers and avoid investment biases, which could lead to poor investment choices.

The report ultimately highlights the slow evolution of some default strategies and draws attention to the fact that some providers are still reviewing their default strategies in light of the freedom and choice in pensions changes announced in 2014.

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