Employers recognise importance of good governance but fail to deliver strategies to improve outcomes for members finds research by JLT Employee Benefits.
* 81% of respondents believe that a well run pension scheme improves outcomes
* However only 32% allocate sufficient time and resource to deliver good outcomes
* 77% have no, or are not aware of, employer support at the decumulation phase
05 August 2013, London: The results of the sixth and latest JLT ‘250 Club’ report (canvassing the views of large private sector employers) have highlighted that, while the vast majority of employers recognise the importance of good scheme governance, many fail to allocate sufficient time to address the issue or offer basic strategies to improve member outcomes and reduce costs in line with good practice.
81% of respondents believe that a well run pension scheme improves member and/or business outcomes and over three-quarters (76%) of employers consider the management and oversight of their DC pension arrangements to be important. Despite this, less than one-third (32%) allocates sufficient time and resource to this activity and some 20% of employers have failed to assess whether their communication strategy with their members addressed their needs appropriately.
Regarding strategies introduced by employers to improve member outcomes, less than half of employers (42%) use salary sacrifice for employee contributions despite the National Insurance Contribution (NICs) savings and the potential improvement in outcomes for members, and only 57% of employers offer matching contributions. In addition, only a quarter (25%) of employers have increased their use of technology to improve the outcomes of their employees, with other strategies such as “save more tomorrow”, where employees agree in advance to give up future pay increases in exchange for increased pension contributions, being introduced by fewer than a tenth (9%) of employers surveyed.
Perhaps of greatest concern was lack of employer support surrounding decumulation (turning retirement savings into a pension). Over three-quarters (77%) of respondents had no decumulation strategy in their scheme or were unaware of such a strategy. With the open market option and impaired/enhanced annuities being one of the most significant mechanisms to help members optimise their retirement incomes, the lack of support or awareness of support on offer is a major concern. ‘Shopping around’ for the right annuity can increase retirement incomes by a third and sometimes even more.
Mark Pemberthy, Director at JLT Employee Benefits commented: “It is encouraging that so many employers recognise the importance and benefit of good DC scheme governance both for employers and employees. What is unexpected is that despite this awareness, many employers are failing to offer their scheme members access to the key strategies that improve outcomes and reduce costs, or if they are offering them, employers are failing to communicate details about them to their employees effectively. In a world of DC pensions where every penny counts, it is important that everything possible is done to reduce costs for employers and improve outcomes for members”
“Research by JLT Employee Benefits and Cass Business School in 2012 found that implementing good governance strategies could be equivalent to an additional contribution of up to 3% pa of auto-enrolment band earnings.”