Scottish Life backs call for Pension Schemes to take more responsibility for DC investment strategy
Thursday, 31 May 2007
Scottish Life, the pension specialist arm of the Royal London Group, has welcomed the recent report from the Pension Institute on defined contribution pensions investment. In addition to looking at innovation in DC investment, the report ("Dealing with the reluctant investor: Innovation and governance in DC pension investment' published in April 2007) focused primarily on governance in three areas:
• Default funds
• Investment choice
• Communication issues
One of the key findings of the report was that 69% of pension professionals surveyed thought that typical investment arrangements in UK DC pension schemes fall short of most members' needs.
This confirms previous analysis by Scottish Life which identified that a properly governed default fund, with appropriate investment choice and clear communication for members, were key ingredients that are often missing in private sector pension schemes. In response to this analysis, Scottish Life launched "Managed Strategies" in September 2004 -- a range of nine benchmark asset allocation strategies, designed to maximise the prospective real return over a specified time horizon and subject to a specified level of risk.
Alasdair Buchanan, Scottish Life's Head of Communications, commented:
"We're not surprised that the Pension Institute's report has highlighted the problem of many default funds not being fit for purpose. This is very important as it helps clarify many of the key issues affecting members of DC pension arrangements as well as addressing how providers can improve current provision.
"The reality is that many members put their trust in the default investment strategy, and rely on it to be appropriate throughout their lifetime. The report suggests that many traditional funds fail to adequately match members' needs. It also indicated that the Pensions Regulator is alert to some of these issues for both contract and trust based DC arrangements. Given the number of people invested in default funds, perhaps the biggest surprise is that it is only now receiving this degree of scrutiny."
According to the report, the NAPF Annual Survey 2006 shows that typically over 90% of scheme members opt for the default fund. The main reason for this is that individuals often lack the full knowledge or confidence to make appropriate investment choices. The Pensions Institute warns that it is paramount that scheme members receive clear communications and that providers ensure there is a transparent governance process.
Nick Leitch, Investment Marketing Manager at Scottish Life, added:
"Our own research and analysis highlighted the need for properly governed default funds with clear investment choice. These are just two of the reasons for Scottish Life having developed 'Managed Strategies', which offers risk-based asset allocations, reflecting a scheme member's own circumstances. Individuals can choose the fund that fits their attitude to risk -- adventurous, balanced or cautious.
"In addition to this, the key elements of Managed Strategies are subject to regular reviews by the Investment Advisory Committee to help ensure that they continue to meet the needs of scheme members as economic and other circumstances change. This governance process offers advisers and their clients a considerable degree of comfort, as these reviews are intended to keep the Managed Strategies funds on track. Performance, as we know, can go down as well as up, and while we can't control market fluctuations, we can monitor whether more (or less) risk is being taken than the adviser or their client was expecting, and we can take action if appropriate."
- ENDS -
For further information please contact:
Scottish Life
Alasdair Buchanan, Head of Communications
0131 456 7133
Polhill Communications
Jenette Perry
020 7655 0530
Editor's Notes:
Scottish Life was founded in 1881 in Edinburgh as a proprietary company, becoming a mutual company in 1968.
On 1 July 2001, Scottish Life demutualised and transferred its business to The Royal London Mutual Insurance Society Limited. Scottish Life is a division of Royal London and is the specialist pensions business within the Group, providing individual and group pensions to the market via intermediaries.
Scottish Life and Royal London's other intermediary businesses are based in Edinburgh where 1,200 staff are employed, with 195 working in other parts of the UK and overseas.
Royal London Group is a specialist financial service provider. Its businesses focus on those sectors of the market which value premium propositions, operating through a number of brands:
• Scottish Life – UK pensions market
• Bright Grey – UK protection market
• Scottish Life International – offshore investment markets
• RLAM – fund management
• RLAS – life and pensions administration
Royal London is the largest mutual life and pensions company in the UK with Group funds under management of £31.5 billion. Group businesses serve around three million customers and employ 2,610 people. (Figures quoted are as at 31 March 2007).