FirstGroup uses target date funds for DC plan

FirstGroup is using target-date funds as the default option for its trust-based defined contribution (DC) pension scheme, which will be used to auto-enrol 12,000 employees on 1 April 2013.

Speaking at the Employee Benefits Pensions and Workplace Savings Summit on 31 January, John Chilman, group rewards and pensions director at FirstGroup, said: “There’s something really compelling about target date funds.

“They are easy to explain, have simple statements, and members can have a hands-off approach and still obtain a good outcome.”

Chilman acknowledged that lifestyle funds are the traditional investment approach for DC pensions in the UK is lifestyle funds. But he added: “The most fundamental flaw in lifestyling is that it doesn’t take into account market conditions when switching. This is why we’ve gone to a target date fund.”

Target-date funds include diversified asset classes at their base and transfer into safer assets as the retirement date approaches. They are also simple in terms of administration and investment reporting.

FirstGroup is also offering DC members the option to use risk-graded and individual funds, in case some employees want to do their own thing.

“It’s important from a member’s point of view to communicate what you need and how to get there,” said Chilman. “We have also got to find the right balance between being paternalistic and being a facilitator.”