By Lydia Fearn, head of DC & financial well-being at Redington
How do we in the pensions industry help our members to not only save more for a better future for themselves, but gain trust in a system that they feel has failed them on epic levels?
Many of us are still raw from the global finance crisis which cast governance under the scrutiny of a despairing public. In 2009, Regulators began forensic analysis of existing procedures across industries. The then NAPF (now PLSA), following a period of analysis, described ‘a governance vacuum’ around defined contribution (DC) pensions and highlighted contract-based DC in particular. It was argued that standards in governance were still focused on practices that evolved to meet the requirements of the defined benefit (DB) model.
What we have learnt from the crisis is that good governance is needed to mitigate future problems. We should use governance to uncover issues before another crisis unfolds. This crisis may well be the low level of pension savings for many – we need to act now to help our members retire when they choose to, rather than wait to see people struggle in retirement. Age UK has highlighted that 1.8 million or 16% of pensioners in the UK currently live in poverty – without action this is likely to increase.
DC pensions landscape evolving
Fortunately, DC pension scheme consulting has been evolving rapidly. The shift in responsibility from the government and companies to the individual in the provision of retirement income has been a catalyst to this evolution.
And while company accountants may take a sigh of relief that diminishing DB schemes will not weigh as heavy on balance sheets in the future (although this is some way off for many) – there is something else interesting happening: Companies are beginning to realise that a poorly communicated, ineffective DC schemes could create a generation of demoralised workers who are unable to retire.
In order to address this and really understand what the issues are, it is vital to have a well-governed, effective and well-communicated DC scheme – that not only helps members retire but also helps to attract and retain talent.
Taking action
I think that not only good governance is a fundamental pillar of a successful DC scheme, but action from governance is critical.
Only acting on the issues and addresses the problems will actually make a difference for members. You shouldn’t only govern, you need to take clear action to rectify any issues.
Improvements to your DC Scheme may be right for today – but continuing to achieve the best outcomes for your members is an ongoing process where high standards must be maintained.
Effective governance should be around built around a framework that can easily show where you are on your journey and what issues need to be addressed. It should incorporate all legislation and best practice so you know you are doing what is required.
The framework should be designed specifically for your scheme, based on your ultimate goal and underlying clear objectives.
Taking time to set your goal and objectives will be time well spent if it means you can clearly identify the areas underperforming or needing more attention – the objectives should be crisp and measurable.
The framework will allow you to consider your DC scheme from a holistic perspective – focusing your attention in the right places and move your scheme forward in the right way.
Ultimately, best-in-class DC provision is a journey not a destination and effective governance is vital to the success of your DC workplace pension.
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