How 150 DC schemes are responding to the Budget and the charges cap

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

THE BUDGET

  • Pension schemes remain unsure about how to adapt to the epic liberalisations announced in Chancellor of the Exchequer George Osborne’s spring Budget
  • Schemes realise the scope of the changes. Almost three quarters (73%) said that the Budget will “greatly” change the way they design their defined contribution scheme. A similar proportion (70%) said they would change the way they communicate with members as a result of the Budget
  • Lifestyle strategies remain prevalent among DC pension schemes; 74% said they used them. However, many schemes told us they would be reviewing the suitability of lifestyle in the wake of the Budget
  • Income drawdown in retirement may become much more popular in the wake of the Budget, experts predict. However, it is unlikely that many schemes will offer drawdown themselves, although some schemes have told us it is something they will consider
  • Schemes are very much alert to the new at-retirement guidance that retirees must receive. The majority – 71% – anticipate providing more advice to members in the wake of the Budget

 

INVESTMENT STRATEGY

  • The charge cap that will be introduced in April 2015 will have a big impact on the investment strategies schemes can use – almost half the respondents said it would mean they had to review their default strategy
  • Schemes are trying to renegotiate with their current providers to bring their strategies below the cap, particularly one scheme, that has managed to reach 0.76%
  • The majority of schemes (63%) are already adopting good practices and reviewing their default on a quarterly basis
  • Despite this, only 12% were confident enough to rate their default’s performance as excellent and 2% said it was poor

 

SCHEME DESIGN

  • Lifestyle strategies were still proving popular, as 74% still used this approach, but 70% said they were reviewing their defaults in response to the Budget
  • The most common driver behind the scheme’s design was the members’ perceived needs, which 41% gave as the main explanation
  • Three quarters of schemes offered matching contribution structures, but a number were willing to double the employee’s contribution
  • Age-related structures kept cropping up, so we explored how these work and why they don’t count as discrimination

 

THE TOP 50

  • From Action for Children to William Hill, there are organisations up and down the country offering their employees high-quality DC schemes
  • Pensions Insight has identified the top 50 of these schemes – not by size, but by a number of qualitative criteria
  • We judged schemes on the basis of their design, investment strategy, governance, communications and administration, so they could be included for having a particularly generous contribution structure, or capturing employees’ attention through an innovative communications campaign

For a list of who has made it into this year’s top 50, and the reasons why, check out the full report here. For part two of of the results in brief, click here.