Thomson Reuters is one of the few schemes to take on the challenge providing drawdown in scheme
Schemes that have chosen to offer drawdown in house are a rare breed, but there are examples. Thomson Reuters was one of the first occupational DC plans to offer drawdown in-house.
When the budget freedoms were announced, the scheme carried out analysis comparing existing pot sizes with projected pot sizes and concluded that future projections make the case for offering members a drawdown approach.
It was felt that drawdown would be an interesting option for quite a high proportion
“Even if [the amounts] in DC pots weren’t particularly high, if people stay with the company, they would be when they reached the point of retirement, so it was felt that drawdown would be an interesting option for quite a high proportion of our membership,” explains Matthew Webb, the scheme’s head of international benefits.
How Thomson Reuters decided to offer drawdown in house
According to Webb the decision was based on three factors – which he describes as the ‘three Cs’ –
Cost – The scheme found that staying in the institutional space was generally more cost efficient than going to the retail funds space. Meanwhile, in terms of the costs of providing drawdown – Webb says the scheme has managed to get a good deal. “We’ve been able to secure what we believe is a fair arrangement with our third party administrator to manage drawdown,” he adds.
Continuity – For members who have an investment strategy while they are working and want to transition into drawdown it makes sense for them to be able to continue in the same plan with the same funds – into and through retirement.
Convenience – “we know that the large majority of DC members don’t like making decisions,” says Webb. He believes that because of this inertia, members will prefer to have the option of remaining within the plan to take what might be their best option.
Nigel Aston, head of European defined contribution at State Street Global Advisors believes that offering drawdown in-house will largely be the preserve of bigger schemes. This is because without significant scale it is hard to provide drawdown cost-effectively.
The trustee is in favour, but they want to make sure they are totally focused on value for money
This is one of the reasons that the Railways Pension Scheme has decided against providing in-house drawdown to members. Paul Faulkner, director of administration at RPMI, explains: “In principle, the trustee is in favour of providing that facility, but clearly they want to make sure they are totally focused on members’ value for money.
If we can’t provide at as low a cost as the market we wouldn’t touch it
“So even if technologically we are able to provide it – if we can’t provide at as low a cost as is available in the market we wouldn’t touch it, because why should a member pay more to stay if they can pay less and go?”