Relax, but do do it
20 December 2021
The last two years have been anything but business as usual, with new challenges round every corner.
It’s therefore pleasing to see that when asked as part of this survey, the number of companies recently kicking the tyres on what they offer is higher than expected.
Nearly half (48%) of companies have either, on the back of a member survey or independently, undertaken a review specifically on the pension they offer to employees. Given the world we've been living in, this is a surprising yet reassuring statistic! What is even more encouraging is that it is not just the bigger employers taking the lead on this (by bigger we mean 5000+ employees). Whilst these employers did account for the largest percentage overall, there are still a lot of smaller organisations that have reviewed the pension they offer to members.
Most recent review of DC scheme design: By size of organisation
Interestingly, as shown in the graph below, over 80% of those employers who have conducted a review of their scheme recently have made changes to their schemes as a result. Although these changes are not always extensive, they have involved employers making improvements to what they already offer across the entire spectrum. For example, some employers have made changes to the contributions on offer, whilst others have made changes to improve the retirement journey for members (something which is an increasingly important area of focus since the pension freedoms).
Changes made following recent review of DC scheme: All that have conducted a recent review (last two years)
There was also a trend coming through for ‘tidying up’ whereby those Schemes with long-standing legacy lifestyles were finally switched to shiny new versions since providers have got better at facilitating clients who want to make sure their members' money is in the most up- to-date default. This has shown to be the case particularly in the Group Pension Plan world, where historically it was left to the member to take some action (and we know from experience this rarely happens).
Understandably, there was common concern amongst respondents that things had become "just to complicated for the average member to understand", highlighting a need for investment options to be simplified. I’m sure many of you can relate to this as members are faced with a raft of choices.
Surprisingly, there were few comments made on the charges members must pay for their pension. In our view and from experience on recent client projects, the DC marketplace continues to be incredibly competitive with charges lower than they have been in the past. However, if you don’t ask you don’t get as they say and whilst the cheapest is not always the best, you should ‘check and challenge’ to make sure that your members are not paying more than they should be.
It is best practice (and a legal requirement for trustees) to assess and make sure that the services and benefits DC savers receive for the charges they pay represent good value (commonly known as a ‘value for members assessment’). Those responsible for all scheme types, not just trustees, should be looking at this regularly. This doesn’t have to be too onerous and adopting a proportionate approach (which is recommended) based on the size and complexity of the scheme can have a significant, positive impact on overall savings and ultimately your DC savers' outcomes at retirement.
LCP recently undertook a review for a client with c.1500 active members and £90m in a DC arrangement. The incumbent provider, along with others, was invited to tender and whilst the outcome meant the existing provider was retained, charges were reduced. This equated to savings of c.£175k pa for members.
Despite the recent ‘distractions’, it’s important not to set and forget. It’s clear that the Covid-19 pandemic has not stopped a lot of companies from making some really important changes to what they offer. Take advantage of the changes your pension provider has made, especially when it means you can resolve long standing legacy issues like the example provided earlier. Keeping a close eye on your offering regularly will result in gradual improvements being made over time, ultimately benefitting you and your members on their journey into retirement.
So as Frankie says relax…..(but do) do it!