On the week that the Commons Select Committee for Work and Pensions announced an inquiry into the governance of defined contribution (DC) schemes, Pension Funds Insider brings you a selection of opinion across the industry on the key issues that have been raised.

Some see problems in the principles of DC that are difficult to overcome. A common theme though was optimism that market forces would eventually see good providers winning the battle for savers when an estimated 11 million people are auto-enrolled into DC schemes.

Keith Webster, Osborne Clarke, pensions partner

Webster spoke on behalf of sceptics who recognise structural weaknesses in DC pension provision.

He told Pension Funds Insider that "it is difficult to see how the Select Committee thinks it will get around these issues and so its report is likely just to add to the pile of 'aspirational' but unachievable output in this area."

He commented that "the last few years have already seen an avalanche of guidance and best practice for DC schemes from the likes of the Pensions Regulator, the DWP and the Investment Governance Group."

Webster believers that all of the output to date has suffered from the same two fundamental problems.

He explained that "first, all DC pensions require an element of member responsibility. Second, in contract-based schemes there is no one looking after the members like the trustees are supposed to do in occupational pension schemes."

Reflecting on the distance between employers and employees in DC arrangements, Webster said that "an employer has no legal obligation to look after members like trustees, and has very little legal ability to intervene even if they wanted to."

Mark Futcher, Partner, Barnett Waddingham

Futcher is concerned about the communication that prospective DC members will receive as auto-enrolment is phased in.

NEST, he said, is aimed at low contributors and low earners, but the majority of their help is online:"This does not seem to fit the profile of their expected membership."

Commenting on new regulations against commission for financial advisors as part of the Retail Distribution Review (RDR), Futcher added that "RDR will remove a remuneration option for group pension schemes which has historically funded lots of face-to-face advice and help.This is still the area most people find beneficial."

Futcher emphasised that efforts to enshrine universal good practice in DC should focus on communication.

He told Pension Funds Insider that "whilst administration, protection of assets and value for money are scheme specific, the other elements that the Pensions Regulator has focused on in its six principals to good defined contribution pensions are not, and are more down to member communication. Our focus would be on ensuring that these communication focussed elements are not disregarded, when auto enrolment brings all employees into workplace pension arrangements."

Futcher spoke against obsessing about good value in DC, saying that "value is subjective.As one member may feel that they have received good value and another may not,it is very difficult to set decency limits – ideally this should be allowed to be set by market forces."

Jonathan Lipkin, Head of Research and Pensions at Investment Management Association

Lipkin welcomed the announcement, saying: "The Work and Pensions Select Committee Inquiry is timely.Clearly, there is much to be done to improve confidence in pensions and the issue of governance is absolutely critical."

However, Lipkin acknowledged that the task of making good DC delivery is a difficult one, telling Pension Funds Insider that "there is no single right answer".

Lipkin added that "over time, examples of best practice will evolve, in response to factors such as changing member needs and a changing economic environment. This is why we support effective and demonstrable governance processes, rather than prescriptive rules around charges or default fund investment design."

He said that work done by the Investment Governance Group on DC investment "offers a useful starting point and we hope that it will find a place within the broader principles being developed by The Pensions Regulator."

Jamie Fiveash, Director of Customer Solutions at B&CE

Fiveash recognises the majority of employers see automatic enrolment as a cost to their business rather than an employee benefit, "otherwise they would have provided it before."

He said that "more than ever, businesses require assistance and help from providers and administrators to help them comply at a reasonable cost."

He reflected that it will be difficult to balance the need to implement new pension schemes while "there are also huge pressures on providers to keep their charges low".

Fiveash said that "if automatic enrolment is to be a success, communications must be simple and free from jargon, particularly for those employees who might never have had a pension before. To be simple, the product must be simple - how easy is it to communicate complex charging structures or multiple fund options?"

He added that "fundamentally, pensions for this new population of savers require simple transparent solutions and automatic enrolment compliance support for employers. This must all be done at a low cost, making volume vital in order to drive economies of scale."

Also placing his faith in the power of market forces to drive good provision, Fiveash said that "administrators and providers must be clear on the market they are serving and competition will undoubtedly drive up standards and drive down cost."

He added that "this is a good time to be in pensions if administrators can rise to the challenge."

The background

To compliment their upcoming report into automatic enrolment, the committee announcedthat it is to look into the following points of DC outcomes:

- Transparency of charges and costs

- Clarity of communication to pension scheme members

- The Government's proposals for managing small pension pots (and the related issue of short-service refunds)

- How DC scheme members can be supported to make investment decisions and assess risks, including when converting to annuities

- Managing investment risk and security of returns

- Whether greater economies of scale within the sector could produce better value for money for members

- How to strike an appropriate balance between regulation, self-regulation and good governance which restores confidence and raises standards.

The inquiry has called for evidence and is expect to draw on the Pensions Regulator's six principals on defined contribution provision, released last December.