Default funds the best option for the majority of staff, but a decade of educating members has not decreased the 80% relying on a fiduciary of some sort choosing on their behalf. People have more interesting things to do than learn the difference between gilts and equities. It should not be a badge of honour to engage large numbers of members to pick their own funds.
Although the default fund should be a good place for most, existing options fail in three areas. People like predictability, but most defaults are volatile. Defined contribution (DC) savers are not as inert as received wisdom has it. Our work for the national employment savings trust (Nest) proved people can react badly to market corrections. Once you stop contributions, it does not matter how good any recovery is.
Pension communications are largely unintelligible and without context, sheep-dipped rather than targeted and tailored. Also, all defaults should be equally transparent, whether manufactured by traditional asset managers or packaged by consultants and platforms.
Default funds must re-establish the strong link between the saving phase and retirement income expectations that existed in defined benefit (DB) schemes. This will help remove the cliff-edge, binary decision facing retirees when they are least equipped to make it.
A credible third way may emerge between open-architecture and single default funds. In the meantime, the default is the right place for most people; we just deserve better defaults.
Nigel Aston is business development director at DCisions
