There is a new generation of defined contribution default funds driving better design and governance across the pensions sector, the National Association of Pension Funds has found.
The Default fund design and governance in DC pensions report said default funds were becoming increasingly important as they are a requirement for all auto-enrolment schemes.
It considered eight DC pension schemes offered by banks and corporations, including Bank of America's trust-based plan, Heineken's contract-based design and Pension Trust's multi-employment master-trust scheme. All have either created, reviewed or improved their default funds.
In line with these changes, members have seen an improved focus on driving value for money over lower cost, the stripping out of investment volatility and the white labelling of funds to make changes easier in the future, the report says. Popular design features include longer periods for de-risking, more flexible pre-retirement phases and more tailored and engaging communications with members.
Mel Duffield, NAPF head of research and strategic policy, said: 'Auto-enrolment is bringing in different types of scheme members, many of whom will be saving in a pension for the first time and will want protection from volatility in their investments.'
As such, the NAPF said 84% of savers today find themselves saving within the default fund where the investment strategy has been designed for them.
She continued: 'We are pleased to see so many employers and trustees rising to this challenge and managing to get a good, comprehensive deal for members on charges while keeping their investment risk down.'
Additionally, the funds offered 15 practical tips on how to approach default fund design.
These include warnings that: the process can take longer than expected; that investment consultants and suppliers should be challenged to deliver against employers' and trustees' expectations; and that the design should be flexible enough to allow additional new features and investments in future.