20 September 2006
30% of trust based Defined Contribution pension schemes are now
offering members in excess of 20 investment funds to choose from,
in an attempt to address a broad range of possible member
requirements, according to Aon Consulting.
By emulating a practice which is widespread amongst contract
based schemes, Aon Consulting argues that trustees run the risk of
failing to meet their legal responsibilities and of overwhelming
scheme members with a deluge of choice.
Under The Occupational Pension Schemes (Investment) Regulations
2005, trustees are required to set out in their written Statement
of Investment Principles "the ways in which risks are to be
measured and managed". Trustees are also required to ensure that
their scheme's assets are invested, "in the best interests of
members". Aon believes that simply offering more funds for members
to choose from without providing sufficient education will not
produce an outcome in members' best interests. This is because an
overwhelming range of options is likely to drive more members to
simply end up in the default "one size fits all" investment fund.
Previous research by Aon Consulting showed that more than 75% of
members opted for default funds where they are made available.
Conversely nearly one-third of schemes (32%) surveyed offered
five or fewer investment options, potentially leading to a similar
rise in the number of members opting for the default fund, because
of the limited choice.
This only has a direct effect for trust based DC pension
schemes, as contract based arrangements have no trustees and,
therefore, no formal requirement to monitor the funds being offered
to members.
