Title
Contents
Acknowledgements 7
The Authors 8
Abbreviations 10
Glossary 11
Summary 15
Background 15
Research aims 15
Default options in WPPs: current practices 16
Views from pension industry stakeholders on DWP's future guidance 17
Recommendations for DWP's guidance 17
1. Background 20
1.1 Policy background 20
1.2 Workplace pension schemes 21
2. Project aims and research methodology 23
2.1 Research aims 23
2.2 Review of current market practice to inform future guidance 24
2.3 Methodology 24
2.3.1 Literature review 25
2.3.2 Industry interviews 25
2.3.3 Workshops 26
2.4 Report structure 26
3. Default options in WPPs: current practices 27
3.1 Introduction to WPP default options 28
3.1.1 Definition of a default option 28
3.1.2 Need for default options in pension schemes 28
3.2 Use of WPP default options 30
3.2.1 Frequency of use of WPP default options 30
3.2.2 Profile of WPP default option members 31
3.2.3 Process in setting up a WPP default option 32
3.3 Design of WPP default options 35
3.3.1 Overall objectives for WPP default options 35
3.3.2 Investment strategy and management 35
3.3.3 Emerging practices 37
3.4 Communication of WPP default options 37
3.4.1 Use of Statements of Investment Principles 38
3.4.2 Communication of investment strategy to members 38
3.4.3 Communication of WPP default options performance to members 39
3.4.4 Members' understanding of investment issues 40
3.5 Governance of WPP default options 41
3.5.1 Governance processes for WPP default options 41
3.5.2 Effectiveness of governance processes for WPP default options 42
4. Views from pension industry stakeholders on DWP's guidance 44
4.1 Introduction 44
4.2 General comments on the guidance 44
4.2.1 The need for the guidance 45
4.2.2 The target for the guidance 45
4.2.3 Concerns raised around the guidance 45
4.3 Topics the guidance should address 46
4.3.1 Default option design 46
4.3.2 Default option communication 48
4.3.3 Governance issues 48
4.4 Other issues raised 49
4.4.1 Timing of guidance 49
4.4.2 Relationship between DWP's guidance and the NEST (National Employment Savings Trust) 49
4.4.3 Tying in DWP's guidance with other existing/proposed pension initiatives 50
4.4.4 Use of consistent risk-rating for default options and risk preferences 50
5. Recommendations for DWP's guidance 52
5.1 Recommendation 1: DWP needs to clearly communicate why it is issuing this guidance 52
5.2 Recommendation 2: DWP should consider extending the scope of the guidance or issuing additional guidance 53
5.3 Recommendation 3: The guidance should clarify the respective responsibilities of employers and providers in relation to WPP default options 53
5.4 Recommendation 4: DWP's guidance should be process driven, rather than being prescriptive on outcomes 54
5.5 Recommendation 5: DWP's guidance should encourage more effective communication with members 55
5.6 Recommendation 6: DWP's guidance should consult on minimum governance requirements for providers 55
5.7 Recommendation 7: DWP could consult on how to achieve more consistent risk ratings 56
5.8 A cautionary note 56
Appendix A - Interview topic guides 58
Topic guide for provider interviews 58
Topic guide for stakeholder interviews 60
Topic guide for EBC interviews 61
References 63
Figure 1.1 Workplace pension schemes 21
Figure 3.1 Typical process of setting up a WPP default option 33
Figure 3.2 Example of provider communication about a lifestyle default option 39
Figure 3.3 The continuous governance process 42