The Investment Management Association (IMA) has published its response to the discussion paper entitled Building personal accounts: designing an investment approach that was launched by the Personal Accounts Delivery Authority (PADA) last May.  

The purpose of the consultation is to obtain views to inform PADA’s recommendations to the trustee corporation which will administer an occupational pension scheme for low-to-moderate earners who do not have access to a scheme where their employer contributes.  

The IMA response includes four main points:  

  • The default fund’s investment strategy must concentrate primarily on the interests of its members, rather than be driven by concerns about how they might react to that strategy.
  • The determination of the fund’s investment objective should precede and guide the choice of style of management (active or passive) and degree of asset class diversification.
  • Assuming that the bulk of personal account holders will choose the default fund, the additional choice of funds offered to consumers should be restricted within narrow limits.
  • Bearing in mind the potential for evolution within the industry, particularly regarding defined contribution schemes, PADA should be careful not to make recommendations that might later restrict the scope of the trustee corporation to respond to changes in the markets.  

Jonathan Lipkin, Head of Research at IMA, commented:  

"It is crucial that the default fund's investment strategy is designed for the long-term needs of its members and not determined by concerns over communication and member behaviour.  

Otherwise, there is a danger that the scheme will be ‘recklessly conservative' and the outcome inadequate. The challenge for PADA and the Trustee Corporation will be to find an investment objective that can be both meaningful to members and allow the Corporation to work towards satisfactory investment outcomes."  

View IMA response to PADA discussion paper Building personal accounts: designing an investment approach, 10 August 2009