Even at a company that specialises in pensions, keeping employees engaged can be tricky

This case study was taken from the J.P. Morgan Asset Management report DC pension plans in the UK: An analysis. The report will be out at the end of October

It may be a life company, with a dedicated retirement and pensions arm, but that doesn’t mean employees at insurance, savings and investments firm LV= are any more clued up about pensions than anyone else.

“There’s a small proportion of people who definitely know their stuff, but really we employ ‘normal’ people – those who answer car accident claims and the like, so engaging these people is the same challenge for us as anyone else,” says Peter Strudwick, LV=’s pensions and benefits manager. 

What has helped with this has been the DC scheme’s very generous contribution rate – a minimum 3% employee contribution (rising to a maximum of 7%) that LV= will then double and add to. 

“The contribution structure was introduced in 2010, when our defined contribution scheme was first set up, and our DB pension was closed to future members,” Studwick explains. “Although the process of setting these rates was partly based on taking a notional view of what we thought a good retirement income should be, broadly we modelled it so that it would be as equivalent as possible to what a DB pot would be, based on someone joining us from school and working their whole career here.”

He adds: “Auto-enrolment was also just around the corner, so we wanted to be sure we were at least compliant.”

KEY FACTS:

Type of scheme: Trust

Year it was set up:2010

What percentage of staff are in the default?: 96%

Have you changed your default, post April 2015: ExtendedDGF

Are you considering changing your investment benefits consultant?No

Will you at drawdown:Not yet. When we do it will be via a third party

The upshot is that 43% of employees contribute at the minimum 3% level, but a not-insignificant 29% are now at the 7% level, too. “Mostly, it’s lower-paid staff at the 3% level, but at the higher contribution levels, there’s much more of an even spread of people at different income, age and career stage levels, indicating our messages are getting though,” he says. “Contributions have edged up. It used to be around 60% at the 3% level.”

Strudwick accepts that “the world has moved on” and that calculations about what a DC scheme ‘could’ reach if someone spent their entire career at the same company are not realistic. 

“We’re about to start looking at outcomes modelling, for people on very different salaries – as the spread of salaries is very wide. What we’ll be doing is looking at what constitutes a ‘good’ retirement income [for employees], and how their pot can contribute to it.”

When this rolls out, it will be added to what staff already receive on their annual pension statement. This is also available online, and allows staff to click on links that will take them to additional modelling tools.

Strudwick has not had anyone take an annuity since the Budget changes: “But this is more because DC is quite young, and no-one’s at the age where they are thinking about their freedoms. Anyone near retirement age has DB elements in their mix too, so the industry has some breathing space.” 

He adds: “We’re not yet offering drawdown. Partly it’s because the trustees need go through all the due diligence before being able to offer employees any new options.”

This case study was taken from the J.P. Morgan Asset Management report DC pension plans in the UK: An analysis. The report will be out at the end of October