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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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