Almost seven out of 10 firms have not reviewed the design of their pension scheme in recent years according to consultants Mercer.
The company’s latest report into the DC pensions market found employers are failing to conduct regular pensions ‘MOTs’ – despite the fact that reviews could lead to them paying less for workplace pensions that would deliver more for their employees.
Overall the report found 68 per cent had not reviewed scheme design, while a third (34 per cent) had not reviewed member fees for three years or more.
Mercer says this is potentially exposing firms to reputational risk and leaves employees paying more than necessary for their schemes.
It added that failure to review other aspects of schemes, might also mean that employees are missing out on legitimate ways, such as salary sacrifice, to reduce the tax they pay and increase the amount of money they receive.
The report — ‘DC MOT – Review, engage and align: how to achieve value from your DC pensions’ — is based on reviews of over 360 pension schemes, covering over three million UK members and over £50 billion in DC savings.
The DC MOT looks ‘under the bonnet’ at 12 key data points to gauge how well a firm is overseeing its pension and benefits schemes for its employees, with the results are benchmarked against other UK employers.
Mercer’s research says that whilst employers may be meeting minimum legislative requirements, many companies, and their workforces could be missing out as result of this lack of engagement.
Mercer’s report also indicates a rise up the agenda of ESG issues, highlighting the importance of ensuring a scheme aligns with the organisation’s corporate values and aims. Four in five (81 per cent) employers indicate they have corporate environmental policies but less than half of their employees (45 per cent) believe the pension scheme is in line with these policies.
Mercer’s analysis also found that three-quarters (75 per cent) of trustee/governance committees do not fully represent the diversity of their organisation. This is an area of focus for the Pensions Regulator and a key tool for ensuring full engagement of staff.
The report highlights simple changes to the way employers approach DC pensions that could increase the benefits individuals receive without increasing the cost or work for the employer.
Mercer DC and financial wellness principal Ken Anderson says: “Our second annual survey of DC pension schemes reveals a number of key areas where employers can do more to ensure they are achieving best outcomes for members.
“Just as you need to ensure your vehicle is road-worthy every year, firms looking after our savings for retirement should be ensuring their pension schemes are fit for purpose. At a time of an acute cost of living crisis and other financial market volatility, it is concerning some firms have not reviewed their schemes recently”
He adds that the pension market has evolved in recent years, particularly in relation to falling changes, while the support offered to members has improved. “To capitalise on these changes, firms need to proactively seek better value from their scheme rather than just assuming it is working hard on their behalf.”
Anderson adds: “This potential mismatch between a firm’s corporate ESG policies and its pension structure could lead to investments allocated to unsustainable investments, which if discovered could pose a reputational risk to the organisation.”