Many companies are still adapting to the pension reforms and, in particular, in introducing new default funds to reflect the increased freedom and choice.
With defined contribution (DC) pensions, in most companies the majority of employees are invested in the default fund and stay there without change until they access their pension.
This is not surprising; to make appropriate and well-informed investment decisions, employees need to understand risk, different asset classes and how they perform both over time and relative to each other, costs and charges and the impact over time and performance, as well as the relevance of this to their own personal plan and their choices when accessing their pension. Most employees don't have the understanding or confidence to make these decisions and so stay in a default.
Pension engagement focuses not only on the DC pension itself, but explores the choices available to individual employees. The impact of how pension savings are invested is more important now than ever before and changing from the default fund is a great trigger to start employees really engaging with their pension.
Structuring an appropriate default investment fund for a workplace pension scheme has three main components: the quality of the investment strategy, the suitability of the solution for the scheme’s membership profile, and ongoing governance.