Employers could boost members benefits by up to 15 per cent by reviewing DC pension arrangements – according to new analysis from Hymans Roberston.
Hymans says a review could highlight potential inefficiencies with current arrangements, with some single-employer trusts able to make significant savings by switching to a master trust or contract-based scheme.
The consultants pointed out that pensions remain a core benefit to employee retainment, but with the current high inflationary environment it is becoming difficult for some employers to increase pension contribution spend. As a result, Hymans said it has become more important for employer to look at DC arrangements to ensure they are delivering maximum value for members.
Hymans added that now is an idea time for review with main providers looking to retain and win work.
Hymans Robertson head of DC corporate consulting Hannah English says: “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 costly inefficiencies that they can stop, or opportunities to take advantage of profitable developments. They can also make sure that their providers are delivering market leading value that’s aligned to their corporate strategy.
“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.”
Hymans has compiled further information for employers on five reasons why they should review pension arrangements. It says the key points are:
1 Additional time and resources
Employers that currently operate a trust-based schemes 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 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. Hymans says employers need to understand how the provider market has evolved and benchmark current arrangement in terms of proposition, price and service against others.
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.
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.
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 corporate strategy can provide opportunities to review.
