Choosing the right pension for your employees is no easy decision. Pension Insight’s HR Zone provides a guide to choosing a GPP
Group Personal Pension (contract-based pensions)
Management quality: medium
Employer involvement: low to medium
Cost: varies, depending on options
Highly regulated, but building a governance board is a worthwhile failsafe
Group Personal Pensions, also termed contract-based pensions, are by far the largest category of company pensions offered in the UK today. Generally provided by insurers or fund managers, they are run in their entirety by the provider, with no need for any management input at all from the employer.
They generally offer members a wide variety of fund choices, but may not be willing to tailor this range to the needs of individual employers without additional cost being incurred.
The GPP provider will handle all behind-the-scenes aspects of the pension, such as administration and ensuring payments reach the right accounts, as well as at least some of the communications with scheme members.
That can all make life very straightforward – but in recent times, there has been an increased move towards employer governance committees to provide some additional oversight of GPPs. These are boards set up by the employer, similar in structure to trustee boards of trust-based schemes, but without legal responsibility for the scheme. A governance board is likely to monitor the provider to ensure that it is providing the best service and value for money for the members. The responsibilities of a governance board vary. In some instances it will simply meet with the provider twice a year to discuss scheme reports and investigate any problems. In other instances, it may have more of a decision-making role around aspects such as negotiating scheme charges or carrying out reviews of the funds on offer.
Auto-enrolment has encouraged many GPP providers to review their products. “The focus has been less around bells and whistles and more about core issues like default funds and middleware – the black box that links together payroll systems and pension systems,” says Robin Hames head of technical, marketing and research at Bluefin Consultants.
Now could also be a good time to shop around for a GPP. “There is some aggressive pricing at the moment and now isn’t a bad time to review your scheme and find out if it’s market competitive,” says Hames. “We’ve seen terms that we’ve raised eyebrows at.”
GPPs are regulated by the Financial Services Authority, with some responsibility for payment of employee contributions resting with The Pensions Regulator.
Case Study: Toshiba Information Systems
Pensions Quality Mark
Based in Weybridge, Surrey, Toshiba Information Systems is one of the UK’s largest electronics firms selling a range of products to both consumer and B2B markets. Its main product portfolio includes laptops, televisions, tablets, Blu-ray and LED lighting. Toshiba Information Systems is a subsidiary of the Toshiba Corporation and has over 250 employees in the UK.
It offers staff Standard Life’s Group Flexible Retirement Plan as a GPP. Scheme members also have an option to transfer their pension into a Self Invested Personal Pension from the same company on an individual basis.
The company offers a maximum employer contribution of 9.5% and has a steering committee (i.e. governance committee) which meets regularly with the company’s benefits adviser, Bluefin Corporate Consulting to review different aspects of the fund, including administration, investment, communication, governance and legislation. The Steering Committee is also responsible for running the scheme’s comprehensive communication strategy which includes: member bulletins, member presentations, one-to-one pension surgeries and a scheme website.
Toshiba Information Systems auto-enrolment staging date is 1 February 2014, but the company is already planning its route to compliance. Zoe Robinson, Toshiba’s compensation and benefits specialist (pictured) says: “We are already engaging with our advisers to prepare for new employer duties, including auto-enrolment.”
The company’s preparations will be boosted by its existing take-up rates and the fact that its scheme already meets the criteria for a qualifying scheme. “We have a high take-up rate in the scheme of 85% currently and actively promote the pension scheme with new employees and non-joiners,” says Robinson, adding that the company expects to increase its take-up rate still further before its staging date.
In January 2012 Toshiba Information Systems received the Pension Quality Mark (PQM) for its scheme. The PQM is a kitemark of good DC practice, available to GPP, trust-based and master trust schemes, offered by the National Association of Pension Funds. According to Robinson, achieving the PQM has been a benefit in helping with high take-up rates: “With the use of ongoing communications including the PQM, we may encourage the remainder [of our staff] to join”.
GPPS: Pros and Cons
› Can be run with very little input from the employer
› Insurer backed and FSA regulated, generally run by very large, well regulated companies
› May in future be easy to extend the service to include other financial products such as workplace ISAs
› Basic options may be limited, with more specific tailoring at greater cost
› Governance will be solely in the hands of the provider, with no independent third-party to monitor them
› Fund range may not be tailored to the membership of your scheme and therefore you will need to make sure the funds on offer – and particularly the default fund – fits the needs of your membership.
› Some GPP providers may not want to provide for all types of employee in an organisation
Who provides them?
Almost all access to GPPs is managed by employee benefits consultants and independent financial advisers. Some of the GPP providers on offer may include:
Aegon, Aviva, BlackRock, Fidelity, Friends Life, Legal & General, Prudential, Scottish Widows, Scottish Life, Standard Life, Zurich.
Key questions for potential GPP providers
- What is the GPP’s commitment to the pensions market in the long term?
- Can it provide examples of its communications literature?
- How closely can the GPP work with us to connect our systems and make them auto-enrolment ready?
- Will the default fund the GPP offers be suitable for our membership?
- What are the charges associated with the default fund? How will these be taken from members and how will this be communicated?
- Is the GPP prepared to take all the employees affected by auto-enrolment into the same scheme, or is it only interested in providing for high-earning, long-stay employees?