According to a new study by Cardano, the leading consultancy and risk management company, many workplace pension schemes are failing to disclose their investment objectives to savers.
The study, analysed by the Financial Times reviewed 29 default workplace pension funds to check if they were meeting their regulatory requirements concerning investment disclosure. 38% of the providers studied did not make it clear what their strategic objectives were, in spite of their regulatory requirements for this to be clear and unambiguous. The total amount invested in these funds? £8 million.
Default funds and their quality have been under the spotlight more and more since 2012 and the advent of auto enrolment. Under auto enrolment, employers are obliged to automatically enrol eligible staff into a workplace pension scheme and pay contributions into it on their behalf. Auto enrolment has been an undoubted success, with now millions more saving for their retirement, the majority of whom are saving into their scheme's default.
Whilst the growth of people saving for their own retirement is a very positive thing, the fact that the majority of these people seem to be saving into their workplace pension scheme's default option represents a "one-size-fits-all" investment strategy. Whilst the default option may be the best option for some people, there may be other options that offer a better fit for other's retirement requirements. Speaking about the study, Ralph Frank, head of the defined contribution at Cardano said:
"There is an urgent need for providers to make this basic information readily available, giving savers a clearer idea of what they need to do to reach their goal. Without it, there is a high risk that individuals will have to work much longer than originally anticipated to get where they need to be financially."
The problem is exacerbated by the fact that one-third of the default funds analysed do not have a stated benchmark and two-thirds also fail to define what they mean by "risk".
"A default fund should help put savers on the path to achieving the outcome they're looking for by having a clearly stated objective, a clear link between that objective and the contributions, and the means to effectively monitor progress against their retirement goal," said Mr Frank.
Cardano's analysis will now be considered by The Pensions Regulator.