For Trustees of Defined Contributions Schemes there is plenty to keep us awake at night, the new Chair’s statement, default fund selection and monitoring and Value for Money (members value that is) to name but three.
How do we go about getting some structure around these and other issues in order to fulfill our duties in the way that our friends in Brighton rightfully expect?
1. Know where you are going – we keep on about it we know, for example see, If you don’t know where you are going, any road will get you there but it doesn’t make it any less true. A lesson from the land of defined benefit which transfers across to the defined contribution environment is to have clear objectives and goals in order to manage the scheme assets and liabilities. The tricky piece for defined contribution schemes is that Trustees will almost certainly not know each members retirement goals (assuming they have some). It’s seems to us that Trustees of defined contribution schemes need to monitor investments towards a members retirement but also in a post freedoms world, investments post a member’s retirement – that is when they are no longer contributing but have not taken an annuity.
2. Know your members – leading neatly on from the first point is that DC trustees need to have a picture of their members. Making assumptions, rather than having some evidence with which to make decisions on, will, we suggest, end in tears. With some real information (which needs to be refreshed) Trustees and sponsors can develop real, achievable targets for member’s replacement incomes.
3. Know your default – this is critical since the overwhelming majority of members chose (or don’t choose anything else) to invest contributions in the default fund. Knowing what you are targeting in the future is a first step in this process. All the more reason for staying in touch with the membership to canvas their views. Investments are an important piece of the members Value for Money discussions. This is not to be confused with investments that track specific indices must provide good value because they are cheap – it’s not necessarily so.
4. There is a theme running throughout this – that Trustees need to be in much closer touch with the scheme members than maybe defined benefit trustees have historically done so. This all revolves around the big difference between defined contribution and defined benefit schemes and that is in the DC world the member has much more responsibility (even if they don’t yet realise it). The question for trustees is how to ensure that members make the best choices they can based on knowledge rather than ‘water cooler chatter’ from friends and relations.
If you think that having a no obligation chat with Trustees who understand the importance of DC trusteeship would be a good use of time, then contact us on 0845 4334 199 or email us at firstname.lastname@example.org