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DC pension scheme governance not up to scratch – report

11 Feb 2020

A report has called for governance standards in defined contribution (DC) schemes to be improved as the system will increasingly dominate retirement packages in the next decade, while technological advancements are changing the way schemes interact with members.  

The Global Pension Assets Study by the Thinking Ahead Institute said developing the high decision-making standards necessary in complex organisations would be a “big governance challenge” as DC schemes become the global pensions market model.

Momentum is strong as DC assets in the six largest pension markets outstripped those of defined benefit (DB) funds for the first-time last year, the report said.

Marisa Hall, co-head of the Thinking Ahead Institute, said member engagement is critical for a stronger DC system, but remains an unresolved issue for many schemes.

“We expect this to be an area of particular focus for leading DC organisations as the next generation of plans takes shape,” she added.

Governance also needs improving due to technological advances changing the way schemes interact with their members, creating new possibilities. “The future of DC is likely to be hyper-customised, with increased focus on individual participants, but many schemes need to improve their governance to fully embrace this,” Hall said.    

“In the multi-device world, and the increased use of social media, members now expect their DC pension arrangements to be communicated in an easily accessible fashion. DC pensions management via smartphones is becoming the norm, much like banking on the go.”

The report also pointed out that pension schemes would be subject to stronger saver and investor protection regulations in the next five to 10 years.

It also forecast that a growing focus on sustainability among pension funds over the next decade would see a “significant” re-allocation of capital towards climate change themes.

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