This year’s survey of 109 UK DC schemes, with more than half a million members and £35 billion in assets, shows that members’ needs are now taking centre-stage.
Ben Roe, senior partner and head of DC consulting, at Aon said: “There has been a clear shift in the last two years, with schemes putting greater emphasis on delivering adequate retirement income for employees. This is a positive movement away from simply keeping pace with others, and we expect to see this trend continue in the future. Three-quarters (75 percent) of respondents also said that delivering better member outcomes is now one of their scheme’s key objectives.
“This is a big step in the right direction. Scheme sponsors and trustees are considering what members will receive in retirement and whether this is enough, as well as how they can be helped either by defaults or by nudging them into taking the right decisions. Schemes are on the right track and the intentions are good but let’s see if they result in real action.”
Outcomes, adequacy and contributions
The survey also sought to understand the extent to which schemes are implementing measures in line with the intention to deliver income for pensioners in retirement. To help them prepare financially, members need to be able to make better decisions by understanding how much money they must save, and what this will mean for their standard of living.
 Steve Leigh, associate partner at Aon, said: “Generally, while it’s great to see an increase in schemes focusing on outcomes, more can be done to drive positive impact for individuals. For example, the level of contributions made and returns generated after charges are key drivers of better outcomes for members in retirement. However, only 36 percent of respondents have an objective to increase member contribution levels and just 28 percent have specific targets for investment returns.
“More could also be done to understand and track changes in how much typical scheme members will get in retirement. It is a blind spot for many schemes, with 66 percent of them not knowing the projected financial outcome for a typical member. Just a third of schemes assess changes in whether individuals are on track to achieve their retirement goals.”
Steve Leigh continued: “There are a few quite straightforward ways to address this. While 93 percent of schemes monitor the investment performance of individual funds against their benchmark, it would be a relatively easy step to monitor the overall performance of default options against long term targets. But only 15% of schemes currently do this.”
Governance structures
Many respondents are rethinking governance structures as part of their drive towards improving member outcomes. The survey has seen a continued increase in DC schemes considering a change in structure, up from around 30 percent two years ago, to 48 percent now. An increased governance burden, (noted by 27 percent) and the will to improve member outcomes (25 percent) are two of the main driving factors.
Steve Leigh said: “Alongside reviewing the suitability of their governance structures, schemes have sought to enhance levels of engagement with pension savers by providing more targeted communications. Among our respondents, 38 percent currently issue some form of targeted communication and a further 44 percent are planning to do so in the next two years.
“However, it is also important to use appropriate measures of success. We found 80 percent indicated that their scheme has some form of proxy engagement measure in place, but there are limitations to this. Proxy measures track website and tool usage but not the extent to which members have taken meaningful action to achieve their desired outcomes.”
Decision-making at retirement
At the point of retirement, more schemes recognise that poor decision-making can cause serious damage to members’ prospects. Nearly four out of ten (39 percent) signpost members towards a financial advisory firm for advice, and a further 19 percent plan to do so within the next three years.
Overall, the 2022 research shows that schemes are intensifying efforts to improve member outcomes. The challenge for the next two years will be to identify specific improvements in governance, investment and engagement that will turn a positive high-level trend into a reality for all savers.
‘Better Outcomes by Design’ – 2022 DC Pension Scheme and Financial Wellbeing Survey
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