Legal & General Investment Management has commended the investment consultation paper from the Personal Accounts Delivery Authority to trustees of defined contribution pension schemes. It offers a level of insight “unparalleled in terms of quality and depth” and has the advantage of being free, says Ian Richards, head of DC strategy at LGIM.
Personal accounts will become the benchmark by which other DC schemes will be measured, he says.
It is encouraging to see life companies, which have dominated the DC market in the UK, taking an interest in Pada’s paper. There is much work to be done on designing default funds that have potential to offer reasonable return without high volatility and on the way retirement income is delivered.
Some life companies have already started down this path, but judging by a recent meeting I had with Scottish Life, have yet to work out how to communicate the benefits of their products effectively.
I was hopelessly confused by the presentation by two gents from Scottish Life, who wanted to tell me about their clever pension plans supposed to resolve the governance problems of contract-based DC plans, where no-one is looking after the interests of the members of the scheme.
The plans have some modern features, including a risk-profiling tool, multi-asset portfolios, rebalancing, and a lifestyle overlay that starts working 15 years before retirement. But they are designed to appeal to independent financial advisers rather than scheme members, and it shows.
Too many bells and whistles, I concluded, and some features that just seemed odd, such as moving the fund entirely into cash if a member wants to buy an annuity at retirement rather than draw an income from investments. Where is the protection against annuity rates moving to a member’s disadvantage in that? The aim is to maximise the real value of the pension pot at retirement, was the answer. I was none the wiser.
Maybe when IFAs have to be paid fees for their advice rather than taking commission from life companies, it will be what customers need that takes priority. Having to measure up to the personal accounts benchmark should also force a rethink.
