IMA: No single right answer to default fund design

8 March 2011

Responding to the Department for Work and Pensions' consultation, 'Offering a default option for defined contribution automatic enrolment pension schemes,' the Investment Management Association (IMA) says there is no single right answer to what makes a good default fund strategy.

Jonathan Lipkin, Head of Research at the IMA, said:

“Many members of DC schemes are reluctant to choose a particular investment strategy, so the design of the default fund is critically important.

“However, there is no single right answer to what makes a good default fund strategy. Therefore the regulatory focus should be on establishing demonstrable standards for good process, such as setting a clear investment objective, ensuring clear communications to members and regularly reviewing investment performance. In this respect, DWP's current approach, based on broad guidance, is welcome.

“As automatic enrolment advances, the Government must communicate the crucial message for savers: contribution levels are just as important as default fund design.

“The IMA hopes that the various strands of work in this area, including the Investment Governance Group's DC principles, will complement each other and create a clear framework for scheme governance.”

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