By Jinesh Patel, vice president of defined contribution, Redington
Therefore, the ability of a company to communicate and design a dynamic and outcome-focused DC plan is more important than ever.
If a company wishes to have a best-in-class DC provision that will protect its workers’ financial futures, boost morale and attract the best talent in the market, we believe most firms must evolve their DC capabilities.
With a fresh approach and commitment to holistic DC provision, we believe this is an achievable goal. We have set out five steps to operating a successful and well run DC plan.
Setting goals and defining objectives
Defining goals and objectives is fundamental to understanding what a company is trying to achieve for its members. This also means formulating ‘the end game’: how a company wants to support its members on their journey to, and through, retirement. When considering a DC plan, a company should always begin with the end in mind.
Getting to know your members
Members can be nationwide and span a range of generations. It is important to gain a deep understanding of members before designing the investment strategy and engagement strategy. Are they Baby Boomers, Generation X or Generation Y?
It is crucial schemes do not fall into the trap of stereotyping broad employee groups. A generational lens can enable schemes to target communications to members to ensure they get maximum impact. Working with focus groups can also make a real difference when trying to understand member needs and deliver messages to the wider membership.
Design and implement the investment strategy
Members are likely to have different views on investment. The majority of members will invest and remain in the default option. There will be others who will want to consider alternative investment strategies (e.g., the AVC group may want to take their savings as cash at retirement). There will also be those who want to select individual funds to complement their other savings.
A best-in-class DC plan must accommodate a design that incorporates an investment solution that will fulfil differing needs in a way that can be effectively governed.
Making the investment strategies available as personal to an individual’s needs and tolerance to risk is crucial.
Engage, Communicate and Educate
To be effective a communication strategy must be Easy, Attractive, Social & Timely (EAST).
The EAST framework harnesses our innate biases to influence people’s behaviours through communication. Using this approach a company can maximise the impact of its communication strategy and achieve engagement across its membership.
For example, the fact that people welcome automatic enrolment suggests there is a broader role for well-thought-out nudges that take the onus off the individual to make decisions, but, importantly, also help them to feel more in control of their future.
Establishing and implement Governance Processes
Best-in-class DC provision is a journey not a destination and effective governance is vital to the success of company’s DC plan.
Improvements to a company’s DC Scheme may be right for today –but to continue achieving the best outcomes for members is an on-going process where high standards are maintained.
This includes adapting and refining investments and communications, but also complying with legislation, guidance and best practice. These areas should be monitored and governed.
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