Only 15 per cent of schemes monitor performance against what returns are needed to deliver adequate outcomes for members, and just 28 per cent think about diversity equity and inclusion principles when engaging with members on financial wellbeing.
An in depth analysis of DC pension schemes conducted by Aon has shown ESG has become an bigger priority for schemes, with 42 per cent now assessing all their investment options against ESG criteria, up from just 10 per cent two years ago. The survey covers 109 UK DC schemes, with more than half a million members and £35bn in assets.
The research found 56 per cent of schemes have offered an ESG option, while just 15 per cent of schemes said their default investment strategy invests solely in ESG screened funds.
The research found an increasing number – 46 per cent of schemes – offering a preferred drawdown solution for members at retirement, with a further 21 per cent planning to do so in the next three years.
Aon principal consultant Steven Leigh says: “Delivering a retirement income has come through as the top objective for the first time, whereas previously it was. Outcomes are a theme.
“The research found 63 per cent of schemes say they don’t know what the outcomes are for members.
“Just 28 per cent think about DE&I outcomes – we think this is going to improve in future.”
93 per cent of schemes regularly monitor investment performance of underlying funds against benchmarks, but only 32 per cent monitor aggregate performance experienced by a member. Just 15 per cent measure against return targets for their defaults.
“In the retirement space, 46 per cent of schemes currently offer a drawdown solution and a further 21 per cent plan to do so within the next three years.”
Aon chief investment officer, DC solutions Joanna Sharples says: “This year’s research reveals a shift towards delivering sufficient funds for retirement, compared to providing a pension in line with competitors. This feels like a mindset shift. I suspect there’s a raft of different issues behind this. Firstly we have a lot more people in DC now, so the focus on outcomes is more important. And the pandemic has made employers think about what is important to employers.
“And over the last few years we’ve seen the retirement living standards and work that the industry has done, this has helped support this trend.”
Aon senior partner and head of DC consulting Ben Roe says: “There has been a clear shift in the last two years, with schemes putting greater emphasis on delivering adequate retirement income for employees. This is a positive movement away from simply keeping pace with others, and we expect to see this trend continue in the future. Three-quarters (75 percent) of respondents also said that delivering better member outcomes is now one of their scheme’s key objectives.
“This is a big step in the right direction. Scheme sponsors and trustees are considering what members will receive in retirement and whether this is enough, as well as how they can be helped either by defaults or by nudging them into taking the right decisions. Schemes are on the right track and the intentions are good but let’s see if they result in real action.”
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