Sophia Singleton, partner and head of DC Consulting at Aon Hewitt, said:
• Only 16% of the respondents receive regular management information on outcomes, while 90% receive information on investment performance.
• 68% of those surveyed had no knowledge of the expected replacement ratio for their members – a key summary measure of retirement income, which looks at a member's retirement income as a proportion of pre-retirement earnings
“DC schemes are emerging from a busy 18 months during which many have implemented major initiatives such as auto-enrolment and pensions freedom. For many schemes, ensuring they are able to meet the demands of these major initiatives has absorbed their full resource and attention.
“Now is the time to re-set the DC agenda. If schemes are serious about the ambition to achieve better member outcomes, then they need to start setting clear targets and putting plans in place to achieve them. They must also set and measure themselves against clear KPIs to ensure that their intentions become reality.”
Top scheme priorities
The Aon DC Survey 2015 includes 330 responses, representing a total of 297 UK DC pension schemes with nearly 1.2 million members and over £33 billion of assets. The top three objectives identified by schemes in their business plans were:
• Better member outcomes (57%)
• Specific communication goals (46%)
• Evidence of increased member engagement (45%)
Sophia Singleton said:
"Having these as key targets suggests positive moves towards what the Pensions Regulator is looking for, but to deliver real outcomes for members these theoretical objectives need to be backed by practical steps. These include making engagement genuinely engaging, finding the right investment structure, providing members access to the new flexibilities, and - importantly - having a focus on governance.”
Managing member expectations
Aon also highlighted the disconnect between members’ expectations and what a scheme can actually deliver.
For example, very few trust-based schemes intend offering access to a full drawdown solution, although some of them are looking at alternative solutions to offer drawdown to their members. Less than half (43%) of the respondents had either a preferred drawdown solution in place or were currently developing one. This is in contrast with the results of the Aon and Cass Business School 2014 members survey which highlighted that 50% of members are likely to need an income drawdown solution.
Sophia Singleton continued:
“DC pensions are inherently flexible, so important decisions and responsibilities are left in the hands of the member. While this allows for greater choice, it puts pressure on sponsors and pension trustees to make sure that all processes are well communicated and that members receive the right education and information to make the right choices. If expectations are out of step with what is realistically possible, schemes need to address this urgently to avoid future problems.”
Other key findings from the survey include:
• 6% of the respondents do not know what their objectives are or have no business plan for their DC scheme
• Communication – 77% of the respondents think that it is the employer’s role to communicate with, educate and support members. But, nearly half of the schemes (45%) are relying on the pension provider to undertake this important role.
• Options at retirement - 39% of schemes are still targeting an annuity as the default investment option at retirement
• Over 40% of respondents did not know about the use of strategies such as white-labelled funds, or target date funds.
• Self-select investment choices - GPPs behave very differently to master trusts and trust-based schemes. 72% of GPPs offer more than 20 funds, typically all the funds available on the platform. By contrast, half of trust based schemes offer six to ten funds.
• Management time - One in five trustees spend less than two days a year on DC.
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