Pensions - Articles - Guidance Guarantee not enough for two thirds of schemes

 The Guidance Guarantee announced in the 2014 Budget will not provide enough support for members of defined contribution (DC) pension scheme ahead of retirement according to the majority (62%) of schemes surveyed by Mercer. Mercer’s snapshot survey on the implications of the Budget had responses from over 300 employers and trustees and found that only 38% plan to simply facilitate access to the free independent guidance. The remaining participants (62%) will offer additional support, although how they intend to deliver this will vary by scheme.

 Mr Roger Breeden, UK DC & Savings product leader at Mercer said: “Receiving generic guidance provided shortly before retirement will be useful, however, for most DC savers it will be too late. To increase their chances of getting a decent pension individuals need to make their investment and contribution choices at a much earlier stage.

 “Trustees and employers need to review their communications and support to ensure employees get a full picture of the options available to them and the consequences of these early decisions. Once the changes announced in the Budget are fully defined they also need to check that all communications material meet the new requirements.”

 When asked whether they expected many transfers from defined benefit (DB) to DC schemes, 76% said they expected less than 20% to transfer out and only 16% expected more than 40% to do so.

 “Our experience suggests that the actual number of transfers from DB to DC would be around 30%, so not dissimilar to what our participants expect. Such transfers, especially in great numbers, could have an impact on asset liquidity, administration processes and the employer covenant, so regular monitoring and building it into risk management programmes is essential,” said Mr Breeden.