There is a general lack of strong governance for default funds in contract-based pension schemes.
Speaking at the annual National Association of Pension Funds Investment Conference 2013, Brian Henderson, a partner in Mercer’s investment division, said: “There is a total vacuum of governance for contract-based schemes.
“Providers have commercial reasons to make sure [the administration, fund ranges and so on for default funds] works, but there is no pressure to keep it up to date.”
He stated that he comes across schemes that feel very old and tired.
“If you are going to put [a governance] structure in place, I genuinely believe you have to give it a bit of teeth so that it is accountable and transparent, so if you are in that arrangement you can see it operating and what a good job it is doing.”
He believes the industry will either need regulation, or market pressure will lead to better default structures prevailing.