The Investment Governance Group (IGG) has today set out a practical framework of principles and best practice guidance to help those running work-based DC schemes improve their investment decision-making and scheme governance. This is the first time the critical issues of investment governance have been addressed specifically for DC schemes – which will have the majority of auto-enrolled employees after the 2012 changes.

The framework is a result of a public consultation with key stakeholders, including employers, trustees, providers, advisers and member representatives earlier this year.

A number of changes have been made in response to points raised in the consultation to improve clarity, allow more flexibility and encourage engagement with good investment governance.

The six revised DC principles are:

  • Clear roles and responsibilities – aiming to help ensure that firm foundations are in place for the process of investment governance.
  • Effective decision-making – decisions relating to investment governance must be taken on a fully informed basis and that the processes must be sound.
  • Appropriate investment options – to make certain that investment options take account of the range of risks and needs within the scheme membership.
  • Appropriate default strategy – determining that an appropriately designed investment strategy is offered for members who prefer not to make a choice.
  • Effective performance assessment – the performance of the chosen investment options must be monitored.
  • Clear and relevant communication – to ensure that members are provided with clear, relevant and timely information so they can make an informed choice about where to invest.

Commenting on the group’s work in the DC area, IGG chair Bill Galvin said:

“Pension schemes are long-term undertakings and require robust and resilient governance structures. Clarity of roles in decision-making is central to delivering good outcomes for pension scheme members and this will be even more important with auto-enrolment.

“Members of DC pension schemes need access to a range of fund choices as well as a default strategy. These principles have been developed by all the main stakeholders to encourage better investment governance amongst all types of DC schemes.

“We hope that this will raise investment governance up the agenda of the pensions industry and employers to deliver the best outcome possible for members.”

Victoria Nye, chair of the IGG DC sub-group added: “Work-place DC pension schemes will increasingly be in the spotlight in the run-up to auto-enrolment. A quality-assured investment governance process for every DC scheme is a key pillar in building members' confidence in their pension provision.

“The first principle, and the foundation for the other five, is the clear allocation of responsibility so that members can easily find out who is looking after their pensions savings from set-up to retirement.”

Alongside the final guidance, the IGG, and the Confederation of British Industry (CBI), have published a guide for employers who provide DC pension arrangements to their staff. This guide summarises the benefits of engagement with simple but effective investment governance activities, particularly in contract-based arrangements.

The revised DC principles, report on consultation responses and guide for employers are all available via the following links:

‘Looking After Your DC Plan (PDF)’ - Investment Governance Group/Confederation of British Industry document on investment governance for employers

A report on responses to the 2010 IGG consultation on investment governance principles for DC schemes (PDF)

Principles for investment governance of defined contribution (DC) work-based pension schemes

Notes for editors

  1. The subgroup of the IGG specifically responsible for DC schemes published a consultation paper in February 2010 to gain reaction to a revised set of investment governance principles which were tailored specifically to the needs of DC work-based pension schemes.
  2. The consultation received 42 responses and also input from stakeholders and the media.
  3. The Investment Governance Group is a joint industry and government forum. The group, which was established following an NAPF review and Government consultation into the Myners principles, will implement an industry-led framework for the application of the principles. Chaired by The Pensions Regulator, the group is made up of leading representatives across the pensions community.

IGG contact
Glenn Fallows
Investment Governance Group secretariat
01273 627278

© The Pensions Regulator 2012