The chain created a new defined contribution scheme to help members keep saving into a generous arrangement after winding up the defined benefit fund
“There was a period of time where we had something of a hybrid,” recalls Keith Sully, the head of pensions at Intercontinental Hotels Group (IHG), diplomatically of the period 2012-13, of a scheme that now has 1,500 members and where its standout differentiation is having maximum matching up to 20%.
“We had a defined benefit scheme after 2002, and defined contribution up till 2013, where at that point we went through a buy-in then buyout process.” [It secured a £440m buyout with Rothesay Life.]
Sully says: “Initially we wanted to wind up the DB scheme, and keep the DC one going, but HMRC decided it wouldn’t recognise winding up part of the scheme. That meant we had to establish a brand new trust-based DC plan on exactly the same terms, that we could then transfer all the existing DC members to.”
Although it was a roundabout way to start off with, at least the transfer could be done without requiring member consent, and what now exists (as before) is a scheme designed around employment grades and employee choice.
To begin with, members are on minimum auto enrolment contributions, but after that, if staff want to pay in more, they can do at either 3, 4 or 5%, and then this is multiplied at different rates (1.5x, 2x, 2.5 and 4x) according to what grade they are at.
- Type of scheme: Trust
- Year the scheme was set up: 2014
- Percentage of members in the default fund: 85%
- Minimum and maximum contribution levels: 1% minimum; 20% maximum
- Scheme last reviewed: 2012
- Type of fund used as the default: Lifestyle
This means a top-grade employee contributing 5% could see this multiplied 4x to reach a combined contribution rate of 20%.
It’s not surprising that in his response to Engaged Investor’s sister magazine Pension Insight’s DC Landscape Survey*, Sully rated the pension scheme 1 out of 5 (top) for its recruitment and retention properties.
Most said that drawdown would be their preferred choice, so their views have directly fed into the future design of the scheme”
But it’s the consultation IHG has with members, too, that Sully is also very proud of. He says: “With the Budget changes, we did an in-depth review – and are now looking at introducing a drawdown choice – but much of the review was with the 70 or so members who were within ten years of their target retirement age.”
He adds: “Most said that drawdown would be their preferred choice, so their views have directly fed into the future design of the scheme. To plan for it, we’re looking at changing our scheme rules, and it will need trustee agreement. We feel the market isn’t quite ready for it, and there needs to be developments, but we at least want to have the rules ready.”
In the meantime, Sully says IHG will continue to have a brokerage service for those choosing annuities paid for by the company.
Considering IHG employs staff over both a wide age and salary range, he says the “vast majority pay at the 5% contribution rate, with the average contribution being 4.5-5%”.
One of the key measures is to bring in tools that enable people to model their contributions”
He adds opt-out rates were only 10% for auto-enrolment. Sully puts this down to preparing a thorough set of documents for the introduction of AE, including sending out memory sticks packed with information, and on-site hard-copy handouts.
Sully says: “Participation is all-important. One of the key measures is to bring in tools that enable people to model their contributions. The reality of our business is that we’ve some people with six months’ service, and others with 40 years, but we’re trying to enable everyone to see where their money is going.”
He adds: “We’ve recently moved into age profiling – started in part through reviewing where we are with our older population. It was such a success that we’re planning to repeat it among other age groups.”
*This case study was originally taken from the J.P.Morgan Asset Management DC Landscape survey. The Survey asked 150 DC schemes about a number of subjects, including investment and communications