At the end of January 2013, the Pensions Board published investment guidelines for the trustees of defined contribution (“DC”) schemes. The guidelines are designed to assist trustees and their advisers in deciding on the investment choices to be made available to DC scheme members. The guidelines could equally be used by trustees of defined benefit schemes who offer an AVC facility. The guidelines describe the different types of risk involved in DC investment and the various types of asset classes and investment fund choice available to trustees.
The guidelines suggest that a choice of between five to seven funds would be the optimum number of choices for members. Too few funds might result in some investment risks not being “covered off” while too many funds might confuse members and make it difficult for members to make a choice. The guidelines also deal with default investment strategies and set out a number of trustee responsibilities in this regard including the obligation on trustees to assess the suitability of the default strategy for members, the costs associated with the strategy, on-going monitoring of the strategy and accurately communicating it to members.
The guidelines confirm that trustees should never advise on any matters on which they are not qualified and should avoid making specific recommendations to individual members. The guidelines are a welcome, clear outline of trustees’ obligations and contain much practical advice. The key challenge remains how to inform members clearly about the available options in making accurate but general observations about the various risks in DC investment.