The FSA has urged the industry to focus on developing simple default funds ahead of automatic enrolment.
The regulator’s comments came after the Association of British Insurers announced at its pensions conference in London today that it plans to work with the Investment Management Association to develop a framework for “good” default funds for defined-contribution schemes.
The trade bodies will produce a joint discussion paper later this year outlining key areas relating to the design, implementation and delivery of default funds.
Speaking at the conference, FSA pensions and investment policy manager Milton Cartwright said: “Automatic enrolment is a world where inertia is the policy position. You cannot expect people to make choices, so putting the resources into designing a good default is really important and it should be kept under review.
“It would be unhelpful to have default funds with lots and lots of investment funds because that creates false focal points of competition for providers.”
Aviva UK Life chief executive David Barral said: “The place I would start when designing a default fund is to have a deposit account with a bank.
“We need to strip this right back to basics and get rid of the complexities. You can then build out from that but it should remain as simple as possible.”
ABI director of life, savings and protection Stephen Gay said: “There has not been enough focus yet on default funds. With many new auto-enrolment schemes on the way, and around 80 per cent of scheme members invested in default funds, it is essential that their governance is as good as we can make it.
“The ABI will be working with the IMA on a series of initiatives to build industry standards, and we will start by producing a joint discussion paper on critical areas relating to default fund design, implementation and delivery.”