Towers Watson welcomes the proposals to improve the governance of Defined Contribution (DC) schemes contained in an industry consultation document published by the joint Government-industry Investment Governance Group (IGG). However, the firm warns that initiatives and consultations should be quickly followed by decisive measures that lead to the provision of better DC pensions in the UK.
“We supported the establishment of the IGG in 2008 in so far as it moved decision taking up the regulatory agenda while highlighting the value and benefits of good investment governance, says Paul Trickett, EMEA head of investment at Towers Watson. We believe this consultation is a positive step in this direction for one of the most neglected parts of the industry, however there does need to be a more concerted effort to register real improvements and quickly.”
The IGG’s consultation document sets out a framework that aims to provide practical guidance to help trustees, providers, employers and advisers increase transparency and accountability. It also makes suggestions about how investment decision making and governance of DC pensions schemes can be improved while maximising the potential for individuals.
“This draft framework is welcome as, theoretically at this stage, it puts good governance at the heart of DC investment decision making, says Paul Trickett. The critical next step it to ensure action is taken to implement best practice principles. This should follow a voluntary approach, which has been shown to work in the DB world where the evolved Myners principles are now accepted as best practice within an environment of overall tightened regulations and enforced by a stronger regulator.”
The firm asserts that these proposals will be successful if they are practical and beneficial to the individual member, do not add to the already heavy administrative and compliance burden on fiduciaries or add to the overall cost of running a pension scheme. In addition, it suggests that a prioritisation of good governance should enable fiduciaries to add value for the member if focused on targeting the appropriate risk/return balance, level of investment sophistication, fund choice and costs.
D.C.