Popcorn pensions from the sunny uplands!

Yesterday I had a chance to talk with a large employer about what they can do to help improve the outcomes of their DC plans.

Influencing employees to get the best out of their pension savings means getting them to engage with the need to save, educate about how to save and empower them to get on with their plan.

Making sure that members get the most out of the contribution structure the employer’s put in place, make suitable investment decisions and spend their savings sensibly is something an employer can do. 

In fact it can be considerably cheaper and more effective to help employees do this for themselves, than simply throwing money at the contribution rate.

Give the man a fish and you feed him for a day, teach the man to fish and you feed him for ever.

When you look at the Pension Regulator’s 6 outcomes of good DC governance, you discover that half relate to helping members make better decision.

I’ve highlighted them

• Appropriate decisions with regards pension contributions.
• Appropriate investment decisions.
• Efficient and effective administration of DC schemes.
• Protection of scheme assets.
• Value for money.
• Appropriate decisions on converting pension savings into a retirement income.

I used to think that “protection of scheme assets”, related to trustee negligence (oops – where did I put those units) but recent events have proved that trustees and governance committees have a duty to protect members from themselves – this is the thrust of the Pension Regulator’s “engage, educate and empower” campaign to keep members away from scammers.

Face to face is best

In the past, we lumped all the above into a useless term “scheme communications” which generally consigned “engagement, education and empowerment” to a brochure that got flung in the bin along with all the other pension literature that comes a member’s way.

Many employers are waking up to the fact that you can really only get a member’s attention by getting them out of the day to day routine, in a room, with someone who knows what they’re talking about.

Our experience shows that there is no substitute for doing this- not fancy brochures, or videos or interactive games that sit on tablets or phones. Until you have got people’s attention, the rest is useless.

Fan as I am of face to face financial education, it can only be provided where the foundations of the saving- the savings plan – are properly constructed. Let’s look again at those six good DC outcomes

• Appropriate decisions with regards pension contributions.
• Appropriate investment decisions.
• Efficient and effective administration of DC schemes.
• Protection of scheme assets.
• Value for money.
• Appropriate decisions on converting pension savings into a retirement income.

This time I’ve highlighted what an employer can do to improve outcomes behind the scenes. This is all about taking care with the selection of provider and the management of that provider to make sure they do the business!

When this list was compiled in 2011, the Pensions Regulator still hoped that employers running schemes would be able to do this work for themselves , through governance committees or trust boards.

The Pensions Regulator now recognises this hope as forlorn. The OFT report confirmed what most of us already knew, that understanding value for money, creating structures to help people spend their savings and overseeing the administration of DC schemes are duties beyond all but a handful of employers.

This level of governance has been largely outsourced to “master-trustees” and Independent Governance Committees” who do the day-to-day job on behalf of employers. But this does not mean the employer should be complacent.

Employers still have a duty to choose the pension provider, this is a duty under auto-enrolment and it is not just a fluffy duty of care.

Getting the wrong provider could result in a suit of negligence from members, wilful choice of an inadequate or even a fraudulent provider could lead to proceedings initiated by the Pensions Regulator and followed up by criminal prosecution.

It is not just a duty at outset, every time that an employer is sending money to a workplace pension provider, they are validating that initial decision. Obviously , it is not pragmatic to conduct due diligence on a monthly or even weekly cycle, but it really is down to the employer to make sure that a decision made when staging auto-enrolment, remains valid in years and decades to come.

It is all too easy for employers to say this is beyond them, for many employers it will be, many more could bother but won’t. But if you are working for, or are the owner of an employer who has or is about to have a workplace pension, then you would be wise to make the most of it. For the sake of your staff, staff morale, productivity and ultimately the value of your business, it is worth paying attention to these issues.

Here’s our friend Greg Broomer of Johnson Fleming in a short video. Clearly we think alike!