Employers can safeguard the value of workplace defined contribution schemes through regular, detailed investment reviews, focusing on performance, risk, and governance to ensure better retirement outcomes for members amid evolving regulatory standards.
Regularly checking pension investment performance is one of the simplest ways employers can protect the long-term value of workplace defined contribution schemes. For many staff, the workplace pension will be the largest investment they ever build, which makes oversight of the default fund and other popular options far more than an administrative exercise. It is a central part of helping members retire with a stronger outcome.
That scrutiny matters because small differences can become large over time. Employers should not assume that all default funds are broadly comparable, or that low charges automatically mean better value. As the People’s Pension’s Max Gist has said, most members remain in the default fund, so employers and their advisers need to understand how it is designed, governed and managed over the long term. Scale, he added, can open access to a wider range of investment opportunities and improve value for members.
A proper review should look beyond headline returns. Antonia Medlicott, founder and managing director of Investing Insiders, says performance should be measured over multiple periods, including three and five years, and longer where possible, then compared with relevant benchmarks and similar schemes. In her analysis of more than 13,000 funds, she found that the strongest five-year result produced 180% profit, while the weakest lost 98.59% of its value. She also said 89% of funds in medium-to-high and high-risk categories lagged the FTSE 100, underlining how wide the gap can be between apparently similar options.
Risk is another critical test. A fund that suits cautious savers should not be judged in the same way as a higher-risk growth option, but poor returns in a lower-risk fund can still signal a problem. Hannah Martin, founder of Rich Retiree, says an investment review can uncover weaknesses in strategy or provider selection and may point to improvements such as changing the default approach, replacing investment managers, cutting charges, lifting member engagement or even switching provider. Any such move should be taken with professional advice.
Governance is what turns periodic review into lasting value. Helyne Slade, head of DC investment at Isio, says trustee boards or governance committees should work closely with providers and advisers to understand how investment decisions are made, how market changes are handled and whether the scheme still offers good value. That approach is becoming even more important as regulators move the market towards the new Value for Money Framework, which is intended to shift the debate away from cost alone and towards long-term returns, service quality and saver outcomes. The Financial Conduct Authority and The Pensions Regulator have both said the framework is designed to make comparisons more consistent across the market, with the FCA’s consultation setting out how performance, costs and service standards could be assessed and disclosed more openly. Gist said that is the right direction, but argued it will only work if applied consistently across workplace pensions.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
