Defined contribution pensions: dealing with the reluctant investor

Abstract

PurposeThe 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/approachThe paper draws on the results of an online survey of the opinions of pensions professionals and on interviews with pensions professionals.FindingsThe 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 implicationsThe 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/valueThe paper provides the first comprehensive review of investment issues for UK defined contribution pension plans.