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As Automatic Enrolment (AE) turns 10 years old, the initial rush to establish a workplace pension scheme (WPS) to meet the newly created employer responsibilities, has transformed into a search for top-quality employee benefits, that supports the recruitment and retention of staff.
Employers must contribute to a WPS for all employees over 22 years who earn more than £10,000 each year, so it’s no surprise an increasing number are keen to ensure both they and their employees, reap maximum value from their scheme.
Over the last decade, competition has forced scheme costs down and the quality of overall propositions up. As a result, some WPS that were state-of-the-art when established, may not be today. The only way for employers to know how their WPS compares to that offered by other employers – and if switching their scheme could be of benefit – is to review it on a regular basis.
Benefits of switching a workplace pension scheme
Both employers and advisers report a number of potential advantages to switching a scheme following a review:
- Most competitive price – The average annual management charge on WPS has fallen over the last decade to 0.48%. While cheapest isn’t always best, it clearly makes sense to ensure your clients’ schemes provide value for money, for them and their employees.
- Improved communication – Now that AE’s well established, there’s much greater focus on employee engagement. A strong employee engagement strategy can help raise scheme awareness, while helping employees understand their pension and how to get the most from it. This is likely to support employee recruitment and retention.
Effective and timely communications, through a range of channels such as mobile apps, employee pension scheme hubs and financial wellbeing services should therefore be considered, as these can often be the difference between a box ticking AE scheme and a really effective employee benefit.
- Pension freedom functionality – Most contract-based schemes offer pension freedom functionality, but there are still several Master Trusts that don’t. This can limit the retirement options available to members, which for some will be an inconvenience and for others, a significant problem. Reviews may also identify shortcomings in the way pension death benefits are distributed which can restrict beneficiaries’ options, or potentially see the proceeds form part of the deceased’s estate and possibly subject to Inheritance tax.
- Access to investment solutions incorporating ESG considerations – Once a niche, now very much front and centre of many people’s thoughts. Analysis suggests upwards of 90% of WPS members sit in the default fund, so investigation of how the default fund incorporates ESG is vital. There’s an onus on scheme trustees and independent governance committees to report on ESG in their default funds, but some will be more effective than others. Many scheme members will also be keen to make ESG considerations the main focus of their investment strategy, and therefore require suitable fund options to be available outside the default.
- Improved employee wellbeing – Employee expectations and ideas of what “good looks like” in a workplace pension are changing. As well as the pension itself, employees are increasingly expecting their workplace to offer a whole raft of other employee wellbeing features, such as budgeting assistance, at retirement guidance and debt advice. Some workplace pension providers offer these additional guidance services, so switching provider may be the best way of achieving this.
Employees who feel valued are often more productive, and this is hugely beneficial for the success of any business. Therefore, if employers are required to make a significant monetary outlay in the form of employer pension contributions, it makes a lot of sense to go that step further and ensure the overall WPS offering is market leading. It’s also important that employees are engaged with their WPS, aware of how good it is, and value it accordingly.
But this isn’t a one-off exercise, it will likely require ongoing reviews of the market to see how your current offering stacks up against the competition.
To find out how to maximise workplace pension benefits, sign up to my latest webinar.
Evidence:
Pension charges survey 2020 – summary – GOV.UK (www.gov.uk)
Defaqto-Workplace-Pension-Guide-2019.pdf (thepeoplespension.co.uk)
The post Justin Corliss: Five reasons to prioritise Workplace Pension Schemes reviews appeared first on Corporate Adviser.
