L&G provides its own, generous pension scheme for its staff, writes Louise Farrand
Of all the places I might have expected to find Legal & General’s head office, Kingswood in Surrey is low on the list.
A quiet, suburban commuter town, its station is deserted when I arrive one grey Monday morning. I walk up a road past some nondescript houses and suddenly it’s on my right: a vast, modern complex (pictured), complete with abundant outbuildings. Naturally I get lost and find myself outside the swimming pavilion. Clearly, this is a company which looks after its staff.
That first impression is compounded when I meet Rob Durbin and Simon Elliott, who are Legal & General’s pensions and benefits technical manager and pensions and benefits manager, respectively.
Both work full-time in L&G’s internal pensions and employee benefits team and have overseen a raft of changes to ready the company’s own contract-based pension scheme for auto-enrolment - and then some.
Name: Legal & General Pension Scheme
Assets under management: £280.9m*
Total membership: 6,646
*As at 31 December, 2013
With its generous contribution structure and automated model, L&G’s own pension scheme - which uses the insurer as its provider - met the standards of auto-enrolment long before the policy came into effect. Instead of sitting on their laurels, Elliott and Durbin decided to raise the bar.
Employees at senior management level or above save into a higher-tier scheme, and already receive a basic employer contribution of 10%, which in itself is compliant with auto-enrolment requirements for 2018 and beyond. If an employee decides to contribute 5% on top of that, then the employer would match it, giving an overall, highly generous, contribution rate of 20%.
Elliott and Durbin have made more far-reaching changes to the scheme that less senior employees save into, that go beyond the requirements of auto-enrolment. “It was already auto-enrolment compliant until 2017, but not thereafter,” says Durbin.
We had 1,500 members who weren’t making any contributions, and that went down to zero as of 1 June
“We wanted to meet the challenge up front of making sure people had a contribution level up front that was ultimately compliant. That’s why we created a lot more work for ourselves than we might otherwise have done.”
That meant increasing pension scheme contribution rates to an overall 9% of basic pay in order to meet the level required of employers in 2017, as part of which employees are asked to contribute a minimum of 2%.
L&G explained the changes to all its employees, first of all in letters and the company newsletter, and then in presentations.
“We had 1,500 members who weren’t making any contributions, and that went down to zero as of 1 June. We’re now up again to about 200 people who have again switched off the 2% contribution - because they can still switch it off,” says Durbin.
You could fit those people who still chose to opt out in the back of a minibus
As part of the auto-enrolment transition, the pensions team followed up with employees who had previously opted out of the scheme to find out why and encourage them to opt in.
Some had opted out for legitimate reasons: because they were close to the lifetime allowance or were making other retirement plans, for example.
If you exclude those rational opt-outs, Durbin says you could fit those people who still chose to opt out “in the back of a minibus - which, for a business of about 7,500 to 8,000 people is not bad, really.”
A charged debate
Durbin and Elliott are proud of the fact that the defined contribution scheme charges 0.4% for the first £50,000 saved and 0.3% thereafter.
“We try and drive down savings in all sorts of things - I think our charges are pretty competitive,” says Durbin.
But how do they keep their costs so low?
“We’re lucky because we benefit from economies of scale. We’re about to hit our £300m mark in terms of assets under management,” says Durbin.
We’re L&G, we expect to get the best rates we can for our employees and our provider happens to be in the same building
“I think there’s an element of ‘We’re L&G, we expect to get the best rates we can for our employees and our provider happens to be in the same building’,” adds Elliott.
The governance board meetings sound potentially feisty. “We are all quite independently minded,” says Durbin. “We’ve always taken it as seriously as we do defined benefit trusteeship,” agrees Elliott.
Reviewing the default
Despite being a financial services company, L&G grapples with the same engagement problems as other companies.
Communication was especially challenging when it came to explaining the characteristics of the company’s new default fund to employees and helping them to identify whether saving into the default fund was the right choice.
Elliott says: “We’re conscious that even in a financial services business, people don’t understand the investment side; they don’t understand the word ‘default’, so we put in quite a lot of effort to make sure that people were aware of the tools that sit on our website.
“Our pension provider came and facilitated sessions around some of the investment options available. For those who couldn’t make those sessions, we did some webcasts and made them available on the internet.”
That said, a marginally lower percentage of L&G’s employees invest in the default fund than the average company - Elliott and Durbin estimate the total is between 75-85%.
The default fund is now a multi-asset fund and was chosen for its steady performance. “It is more diverse in terms of the asset classes it covers,” says Durbin. “It has UK equities, overseas equities, an element of property, and bonds, and other bits and pieces as well. It’s much more of an all-rounder.
“Because it’s more diverse, it won’t necessarily shoot the lights out as much as a pure equity fund might. But it’s not likely to crash down through the floor, either.”
It challenged employees to live on the state pension for a week
The company also communicates the importance of saving into a pension in less conventional ways. In the run-up to implementing auto-enrolment, it challenged employees to live on the state pension for a week. After taking out living expenses, they estimated participants would have around £70 a week to live on; 180 people volunteered in 2012.
“The rule was that for a week they lived on their ordinary income, and for another week they lived on their state pension income,”
“They had to keep a diary for each week for the contrast. It was a useful lesson - lots of people said: ‘I’m going to take my finances more seriously’.”
On the horizon
Next up on the pensions team’s agenda is improving the benefits statements DC members receive.
“Essentially, Legal & General have revamped their stakeholder benefits statements that were issued to clients every year, including staff, but there are customisable pages where we can put our own specific messages as the employer. We’re starting to look at that,” says Elliott.
Anything that drives engagement for people is a good thing
The at-retirement experience for the member is also under review. “We’re looking at how we can augment that,” says Durbin.
No doubt the government’s recent Budget - which the team are still digesting - will fuel the discussion. “Anything that drives engagement for people is a good thing,” concludes Durbin.