How DC schemes communicate with members, the different philosophies of schemes in the UK and US, and why the employer is playing a bigger role in pensions than ever before

The second half of results from Pensions Insight’s annual DC 50 research, in brief.

EMPLOYER PHILOSOPHY

  • Companies offer their employees DC pension schemes principally in order to recruit and retain high-quality staff and to demonstrate that they are caring employers
  • UK employers typically feel paternalistic towards their employees, and want to protect them and their retirement futures by putting their staff into a savings plan they believe will be in their best interests
  • US schemes favour empowering their members to choose their own investment strategies by giving them the range of choices and education they need
  • There was a disconnect between what schemes wanted to provide and how effective they thought their strategies were at meeting those objectives – for example, 58% said their pension scheme was either fairly or very important as a recruitment and retention tool, but only a third thought it was effective

 

GOVERNANCE

  • Responsibility for DC provision is moving from trustees to the employer – more than half of the respondents were pensions managers
  • The vast majority (88%) of schemes used a consultant – more than in the US, where the figure was around three-quarters
  • Trust-based schemes were more likely (51%) to be very satisfied with their consultants’ performance than contract-based schemes (38%)
  • A third of schemes used their consultant to make sure they were aware of regulatory requirements and that these were being met

 

COMMUNICATIONS

  • Just over a quarter (27%) said their consultant proactively suggested new ideas and shared best practices with them, and 11% said their consultant checked in routinely to see if their assistance was required
  • Communications was identified by 51% of respondents as the factor that had the biggest impact on whether or not it met its objectives, but almost a quarter thought their strategy was failing to meet the scheme’s needs
  • Schemes were keen to communicate with members for three main reasons: to educate their employees about the benefits they will receive, to help members make appropriate investment decisions, and to encourage increased contribution rates
  • The most popular methods of communicating were annual benefit statements (90%) and websites or intranets (82%)
  • The least common communication methods were mobile text messaging (4%), providing access to an external financial adviser (15%) and briefings through line managers or pensions champions (16%)

 

ADMINISTRATION

  • Pension schemes seem reasonably content with the quality of administration they are receiving – 62% said they were either very or extremely satisfied, and only 5% were not very or not at all satisfied
  • The most common objectives that schemes were trying to fulfil through their administration were: to ensure members were highly satisfied with the service they received (88%), to satisfy the minimum legal requirements (85%), and to ensure that the scheme is operationally efficient (83%)
  • Not all respondents were confident that they understood the fees the scheme and members were paying – 80% said they were either fairly or very confident they knew what they were, and just 66% were confident they represented good value
  • More than two-thirds (68%) thought they were monitoring their administration fees appropriately, with 55% reviewing their administrator’s performance on a quarterly basis
  • Over the next 12 months, schemes were chiefly concerned about how they would review their default funds in the light of the Budget

 

THE FUTURE

  • Schemes wanted to improve their communications in the short term to make sure members could understand and appreciate their benefits
  • Communications also cropped up as a long-term goal, as schemes wanted to revamp their strategies by segmenting members and offering better planning tools
  • One of the advantages of collaborative investment is that schemes have the chance to share expertise, which was particularly useful when it came to more complicated alternatives
  • The Pensions Policy Institute predicts there will be around 14 million people saving into DC pension schemes by 2030, representing £480bn in assets under management

To read part one of the results in brief, click here. To read the full report, click here.