Employers should focus on their employees’ retirement income needs rather than the size of their pension pot when devising, implementing and managing their default pension fund strategy, said Simon Chinnery, head of defined contribution (DC) and chairman of the Defined Contribution Investment Forum, during an interview with Clare Bettelley, associate editor at Employee Benefits.

He said: “First of all, they shouldn’t panic. It may seem that this is a really complicated thing [to do], but actually it is really straightforward. It’s about how [employers] can get [their] members to a good place [and] get them to retire, and if [they] work backwards from there. I think that will help frame the focus of what they’re doing with the plan.”

Chinnery said employers need to start by identifying their default fund strategy objectives and what they would like to achieve.

“I suggest that this is to get [their] members to a minimum income replacement level, and then work backwards from that,” he added.

“Critically, this is not about getting the big size of pot because that is too busy, too vague and too indistinct.”

Chinnery was one of a panel who participated at Employee Benefits’ roundtable event, The future of default funds, in December 2013, which was sponsored by the Defined Contribution Investment Forum.

The roundtable debated a range of default fund issues in the context of pensions auto-enrolment, from the extent to which default funds are fit for purpose to how employers can communicate their default fund options to employees.

Read the digital edition of The future of default funds.

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