The role of the defined contribution (DC) consultant will evolve and expand as HR departments wake up to the savings shortfalls experienced by many of their older staff. That is the prediction of Aon head of DC consulting Ben Roe as he reaches the end of his second decade with the consultancy he joined as a graduate.
The Yorkshire-born, cricket-loving consultant spent the first 17 of his 20 years with the firm working on the defined benefit side of the business. He was made head of DC consulting in 2020, and so how does he compare the two camps?
Roe says: “People think of DC as being simpler and easier than DB in terms of being less complex, but I don’t think it is. You are touching the member a lot with all the decisions they are making, you have the governance, the investment side and the engagement to deal with.
“And it’s incredibly competitive as well, both from a consulting perspective, but also in the provider space. There’s a lot of very competent providers out there and there are very fine margins between all the firms, making it quite a hard job to differentiate.”
In the past 18 months Aon has brought its DC teams together, across standalone DC schemes, small corporates and big firms – while its master trust proposition is run by a separate team.
C-suite interest
Roe says he has seen an uptick in interest from corporates when it comes to pensions, with contribution increases on the agenda for the first time in years, in part as a
result of people’s inability to afford to retire, and also because of the changes to the lifetime allowance.
“We’re certainly seeing more interest because of changes to the pension tax allowances. This is the first time that we’ve seen scope for increases in pension contributions for 15 years probably, which has got to be good news,” he says.
“We’re also starting to think about bonus waiver season and the fact that becomes more prominent again now people have more scope.”
Gender pensions gap
Alongside the transition to retirement,
Roe also sees addressing the pensions
gap, which is bigger in DC than in DB, as a huge issue for society. He refers to the DWP data on the gender pensions gap in private pensions.
“The headline was that the gender pension gap was about 44 per cent in in DB but 60 per cent in DC.
“We have a generation of [underfunded] DC retirees coming through, but how is that going to affect society? How are companies going to think about that and what will it mean for their strategy?
At the moment pensions are still in the finance space. People are scarred by DB and deficits and deficit repair contributions. But I think we will start to see that change and see pensions getting it back onto the HR space,” he says.
DB surpluses
As a result of the numerous interest rate increases, lots of DB schemes are coming to a point where they are in surplus.
“One of the simplest and most tax efficient ways to use that surplus is to finance DC contributions. We’re seeing some even going as far as putting DC back in the existing DB trust so that they can finance those contributions going forward,” he says.
He reports that he has two clients that have moved to a master trust that are now looking to move back to their own DB-DC hybrid trust arrangement for a period, so the surplus can be used up.
“We’re talking about significant sums of money. One of the examples I have seen has enough that it can fund DC contributions for about a decade. Others are for five years. This is something that no-one was calling 18 months ago. It’s a classic example of where the pensions industry suddenly has to think on its feet.”
Robo solution
When it comes to the thorny challenge of DC decumulation, Roe sits more on the advice than the guidance side of the debate.
“Personally, I struggle with guidance, as where is the line? What can you really do with guidance? Because somebody at some point is going to turn around and say, ‘What do you think I should do?’
“Advice is crucial because everybody’s situation is so specific to them, so nuanced and complex. The big challenge we’ve got with the advice market is making it affordable and accessible for the masses. So I do think technology has a big part to play, particularly in the at-retirement space. A robo advice solution that works really well for simple cases in the at-retirement space, it’s important from a from a DC perspective that we get that to work,” he says.
So is Aon looking to partner with some form of robo adviser any time soon?
“We wouldn’t be looking at doing it ourselves. But that’s an area that is of interest to us in terms of where the market is,” he says.
Compact risk
Roe is broadly supportive of the Chancellor’s Mansion House pensions compact, which sees several big UK DC providers sign up to endeavour to hit 5 per cent allocations to private assets by 2030. Aon is not one of the signatories, however.
The compact is based around three ‘golden rules’ – to secure the best possible outcome for pension savers; to always prioritise a strong and diversified gilt market to deliver an evolutionary, rather than revolutionary, change in our pensions market; and to strengthen the UK’s position as a leading financial centre to create wealth and fund public services.
“If you look at the three aims of the compact, they are all laudable. Number one for me is that the members’ interests are central. Private markets is an asset class that adds some diversification. There are some challenges around it – we have gated property funds at the moment, for example, and we need to work through these issues and come up with something that is workable. But this comes down to the value versus cost point. If all providers are assessed on cost and you’re putting something quite expensive into your default strategy, and no-one else does, you’re going to look quite expensive. So that is a big risk for some of the providers.”
ESG interest
Roe reports there is considerably more interest in environmental, social and governance (ESG) investing amongst
the schemes he oversees than there is in private markets.
A recent Aon survey of DC schemes found only 4 per cent are looking at private markets. “Whereas we have got more than three times that, 15 per cent, looking at ESG funds and increasing their allocations there. And anecdotally, I think it’s even higher than that.
“But it’s not just schemes, it’s also individuals wanting to do the right thing. From a return perspective, we can’t see any downside in this.”
Does he get kickback on the widespread 2030 50 per cent decarbonisation target, and 2050 net zero goal?
“Yes, definitely. There are polarised view when you go in to see a trustee board, and there are strongly held beliefs.”
Future of consultancy
And how does Roe think the role of the DC pensions consultant will evolve once the consolidation story has run its course?
Benchmarking contributions and broader benefits, governance, understanding adequacy and at-retirement readiness are all areas that will continue to grow in importance as DC pensions become the main retirement vehicle for the UK populace.
Roe is not in the camp of those who think the role of the pension consultant will diminish once the consolidation story has run its course. But he does think the role will change.
“DC is probably not getting as much attention as it should be doing in some areas. And we’re seeing companies and trustee boards wake up to that. They’re going to need more support going forwards. Even those that have consolidated into master trust still need consulting work. It’s just different consulting work – like financial wellbeing and member support around retirement. It just changes the
nature of the work and the help that those clients require. I think it will continue to grow in the future. I can’t see any contraction,” he says.
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