 By 2018 the Government expects between 6-9 million more people to be saving in a workplace pension1. Yet currently, 32% of people are not saving for retirement with 57% of these arguing that they cannot afford to.2 So how is the employer expected to integrate auto-enrolment into their core business activities without operational and de-risking costs spiralling out of control?
UK businesses warn that the resources and IT infrastructures needed must not be underestimated. As Dermot Courtier, Head of Group Pensions, Kingfisher, states; “It has been challenging to work with the system data providers, both payroll providers and DC system providers to make sure that they have in place new robust systems to meet our staging dates.”
SME’s can learn valuable lessons on planning, designing and delivering a functional administrative system that helps mitigate volatility, relative to an 'annuity liability'3. So how should the pension plan and fiduciary best educate members on how to navigate the bewildering choice of assets for a solid investment future?
As the UK’s largest businesses pass their implementation stages, the Auto-Enrolment for UK Pension Scheme report, published by Clear Path Analysis, explores the problems encountered and solutions implemented by leading Pension Scheme Managers and Finance Directors. With contributions from Blackrock, PIMCO, JLT Solutions and the UK’s largest schemes including Marks & Spencer, Bupa and British Airways this report explores employers’ options because little time is left for even small and midsized companies to start their preparations.
Regardless of Government guidelines, requirements and stipulations the experience of auto-enrolment varies greatly from business to business. According to Paul Bucksey, Managing Director, Head of DC Business Development & Client Relations, BlackRock Investment Management, “The difference between those people staging now versus later on is size, and the larger you are as an employer the harder it is to communicate. A number of employers who have already gone through staging are typically retail employers and as a result, it is a little bit harder to communicate a fairly dry and complex topic electronically with employees who don't necessarily have access to the internet through work”
A robust risk management framework through which fiduciaries can manage default investment options is imperative to successful auto-enrolment offerings. According to Will Allport, Defined Contribution (DC) Business Development Manager, UK and Ireland, PIMCO, “Fiduciaries and their advisors can mitigate their own risk by helping to ensure that more members have the intended desirable outcome.”
Allport stresses the importance of developing an alternative framework that goes beyond traditional asset allocation, while focusing on a de-risking approach that remains sensitive to current market conditions, inflation-adjusted outcomes and downside protection, “ to generate sufficient assets to support retirement spending in the future.”
He goes onto say that in order to develop PIMCO’s easy-to-implement investment portfolio for DC default investment strategies, they “compared it with two alternatives: first, a ‘typical lifestyle’ approach consisting of global equities de-risking over 10 years into annuity-matched bonds and cash, and second, the default investment strategy implemented by NEST.” Allport goes onto to discuss crucial factors that must be incorporated such as; “One-Year Loss Potential to capture the impact of “Black Swan” events.”
Choosing a bespoke auto-enrolment solution remains a headache; but it remains crucial for effectively managing money in a manner that is sensitive and robust to prevailing market conditions. On selecting that solution, Martin Freeman, Director, JLT Benefit Solutions, comments; “As a minimum threshold, an auto-enrolment solution helps you to comply with your obligations to assess, enroll and deduct contributions for your workers. It must also enable workers to opt-in and opt-out and deliver statutory notices to them. Finally, it must maintain an audit trail that enables you to fulfill your record keeping requirements.”
Within an employer’s specific requirements there are multiple routes. Julie Parker-Welch, Pensions Reward Manager, Marks & Spencer, comments; “We decided to go with the master-trust model as we couldn't understand the logic in having many companies with various DC arrangements. {..} By having this big bundled solution, you can keep your costs low, you've got all your systems in one place and the trustees will be there to oversee your membership even when they have left your company.”
According to Katie Duxbury, HR Programme Manager, Bupa, “The concept of auto-enrolment means that this is a group of people who haven't made any active choices and this means that we are working with a level of inertia by pushing them rather than expecting them to actively reach for a pension membership.”
1 Steve Webb MP, Minister of State, Department for Work and Pensions
2 Paul Gilbody, Director, Head of DC Consultant Relations, Blackrock, ‘Auto-Enrolment – end of the first term report card’, in Auto-Enrolment for UK Pension Plans, (Clear Path Analysis)
3 Will Allport, Defined Contribution (DC) Business Development Manager, UK and Ireland, ‘PIMCO Auto-Enrolment: Risk Management for Default Investment Strategies’ in Auto-Enrolment for UK Pension Plans, (Clear Path Analysis)
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