So it’s important for employers to take a look at their DC pension arrangements to ensure they are getting maximum value for scheme members. The leading financial services and pensions consultancy says that now is an ideal time for that review, in an era where providers are looking to retain and win work.
Commenting on why employers should review their pensions arrangements, Hannah English, Head of DC Corporate Consulting, Hymans Robertson said: “There are many reasons why employers should consider reviewing their current arrangement, and by doing this they can ensure that members are getting the best possible retirement outcome. They might discover, for example, costly inefficiencies that they can stop or opportunities to take advantage of profitable developments. They can make sure that their providers are delivering market leading value that’s aligned to their corporate strategy. And they could increase appreciation of the scheme after ensuring that their communications are as engaging as possible by harnessing all the latest digital tools and technical innovation.
“A switch to a Master Trust or contract-based solution can reduce some of the cost and burdens of governance, freeing up time for improving member outcomes and risk management.
“Understanding how the provider market has evolved and benchmarking arrangements in terms of proposition, price and service against others, will ensure that a scheme’s chosen provider continues to deliver the market leading value. Also, understanding planned developments from providers and challenging them to be an early adopter will ensure members benefit as soon as possible from such developments.”
Five ‘trigger points’ could provide reasons for a review of the scheme, according to the leading pensions and financial services consultancy:
1. A need for more focus time and resource
Those employers that currently operate a Trust based scheme for the provision of your DC arrangement, a review might reveal that a switch to a Master Trust or contract-based solution can reduce some of the burden of high governance costs and time commitment. Changing the arrangement could free up time to spend time on the areas that will drive the most positive impact on member outcomes, and risk management for you as an employer.
2. Improved propositions, price and service
The Master Trust authorisation process during 2018/19 sparked a race for providers to grow their assets and membership. This has resulted in Master Trust providers investing significant amounts of money in the development of what they offered. Many contract-based providers are looking to mirror this to remain competitive and offer good value for money. Understanding how the provider market has evolved and benchmarking your arrangement in terms of proposition, price and service against others, will ensure that your chosen provider continues to deliver the market leading value that is available to schemes today.
?3. Better understanding of future developments
Continued innovation is required to deliver better outcomes for savers. This includes: more sophistication in investment solutions (introducing illiquid assets to drive returns); seamless to and through retirement solutions; better guidance and support for members; and innovation in retirement solutions to support sustainable incomes, such as longevity pooling.
Given the size and scale of pension providers, they will play a key role in developing and delivering what is offered by employers. It’s vital that employers keep up to date and understanding planned developments from their provider and challenging them to be early adopters. Through this it will ensure members benefit as soon as possible from developments.
4. Increasing appreciation of the scheme
To support DC scheme members with saving more effectively and understanding the value of their scheme it’s important that employers have a communication strategy that is consistent, results driven and most importantly, genuinely engaging. Tools and technology have an increasing role to play in this. Providers have made significant investments in improving tools and technology which have an increasing role to play in communications. These can be part of member engagement strategies which can sit alongside any corporate communications. Reviewing and leveraging the services of your provider and ensuring it’s well suited to your membership will help drive appreciation and understanding of your pension offering and ultimately help increase member outcomes.
5. Alignment with your corporate strategy
Aligning pension arrangements to an employer’s corporate strategy is important. Recently there have been dramatic changes to default investment funds, with providers introducing higher allocations to more ESG focused funds. Providers are also developing how they improve DE&I, for example, through diverse Master Trust Trustee Boards. Checking the practices and policies of the pension provider and challenging how well aligned these are to your corporate strategy can provide opportunities to review.
Hymans Robertson’s guide 5 Reasons why you should review your DC pension arrangement can be read here.
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