June 20, 2013

Unity Needed to Tackle Flaws in Defined Contribution Pensions, Finds New BNY Mellon Report

London, 20 June 2013 — The pensions industry should unite to tackle serious flaws lying at the heart of Defined Contribution (DC) pensions, according to a report launched today by BNY Mellon Investment Management at the annual DC Developments and Current Issues for Pension Funds Conference in London.

With DC pensions fast becoming the dominant form of occupational retirement provision in the UK, BNY Mellon interviewed key stakeholders involved in DC in order to test the pulse of the industry and explore the role that benchmarking plays.

The report — Are benchmarks still fit for purpose – or are they a misguided obsession? — found serious inconsistencies in the approach towards benchmarking and deep routed flaws that lie at the heart of DC. The key findings are that:

  • There is confusion among trustees, members and pension providers about the role of benchmarks.
  • DC members are failing to track their progress because there is no simple, common system for setting and monitoring pension objectives.
  • Pension professionals have largely given up on the ambition of engaging members in retirement planning, preferring automation.
  • Pessimism is rife; there is general agreement that unless a course of treatment is found a crisis will result.

The report involves in-depth interviews with trustees, pension managers, trade bodies, consultants and other experts involved in occupational DC pensions.

It found that a number of new approaches and innovations are being attempted in DC which could have a positive impact on the industry, such as: annuity-linking, liability-driven investing, the return of peer grouping, complex multi-asset techniques and 'smart beta'.

The report prescribes a course of action that could help ease the problems endemic within DC, including:

  • Establishing a common process for members to set and track pension saving objectives.
  • Putting short-term updates in the context of progress towards long-term goals.
  • Establishing a League Table of default funds could help trustees monitor their own effectiveness.

Catherine Doyle, head of Defined Contribution, UK at BNY Mellon Investment Management commented: "Despite developments in Defined Contribution pensions, confusion surrounds the use of benchmarking which highlights significant flaws in the system. For instance, traditional and new forms of capital market-based and economic benchmarks are useful to trustees in assessing the performance of individual fund managers. However, such benchmarks have little relevance for individual members. Partly as a result of this, members are unable to monitor their pensions."

For a copy of the full report, please follow the link below:

BNY Mellon Investment Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. Information about BNY Mellon Investment Management can be found at www.bnymellonam.com.

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