Defined contribution pensions: dealing with the reluctant investor
| Pages | 206-219 |
| Published date | 25 July 2008 |
| DOI | https://doi.org/10.1108/13581980810888822 |
| Date | 25 July 2008 |
| Author | Alistair Byrne,Debbie Harrison,David Blake |
| Subject Matter | Accounting & finance |
Defined contribution pensions:
dealing with the reluctant
investor
Alistair Byrne
University of Edinburgh Business School, Edinburgh, UK, and
Debbie Harrison and David Blake
Cass Business School, Pensions Institute London, UK
Abstract
Purpose – The purpose of this paper is to provide an overview of key issues in the governance of
defined contribution pension schemes, with a focus on investment matters, and to recommend best
practices.
Design/methodology/approach – The paper draws on the results of an online survey of the
opinions of pensions professionals and on interviews with pensions professionals.
Findings – The paper finds that many employers and pension scheme trustees are reluctant to take
an active role in pension scheme design and to provide support and guidance to members for fear of
legal liability. Scope exists for regulators and legislators to create “safe harbour” provisions that will
encourage employers and trustees to become more active in supporting members.
Practical implications – The paper makes a number of suggestions for best practice in the design
and governance of defined contribution pension schemes, for example, in terms of the fund choice that
should be offered.
Originality/value – The paper provides the first comprehensive review of investment issues for UK
defined contribution pension plans.
Keywords Pensions, Pensionfunds, Investments, Regulation,Governance, Trustees, UnitedKingdom
Paper type Research paper
1. Introduction
This paper examines the governance of defined contribution (DC) schemes with
reference to the investment choice and, in particular, the design of the default fund. We
explain where and why the current system fails to support DC scheme members and
what steps can be taken to address the problems.
DC is the most common type of new pension scheme in the private sector and is
likely to continue to be so for the foreseeable future. Under defined benefit (DB)
schemes the employer bears the investment and longevity risk. Under DC these risks
are transferred to individual members, who must make complex decisions about the
types of funds in which they invest their contributions. With the exception of their
senior executives, it is unusual for employers to pay for face-to-face regulated
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
This paper is based on the Pensions Institute report Dealing with the reluctant investor:
Innovation and governance in DC investment, published in April 2007. The research was
sponsored by Aon Consulting, Fidelity International, HSBC, Scottish Life and Scottish Widows.
The sponsors have not sought to influence the conclusions of the report and they may not share
the views expressed here. The report is available for download at www.pensions-institute.org
JFRC
16,3
206
Journal of Financial Regulation and
Compliance
Vol. 16 No. 3, 2008
pp. 206-219
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980810888822
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