FTSE 350 Defined Contribution Pension Survey 2020 https://t.co/iD5kcNLMfR via @WTW_uk

— Henry Tapper (@henryhtapper) July 13, 2021

The collapse in confidence among small pension schemes gathers pace as Corporate Adviser reports.

Two-thirds of employers who currently run their own trust-based pension plans are considering switching to a master trust within the next two years, according to new research from Willis Towers Watson.

Its annual FTSE 350 DC pension study shows that on top of this 12 per cent of employers who already use a master trust are also considering reviewing their provider within this time scale.

Corporate adviser  reports Gemma Burrows, director in Willis Towers Watson’s Retirement business, as saying:

“For many employers that moved to a master trust five plus years ago, the options available in the industry have changed dramatically. Some of those employers are now starting to look around and consider whether there are more suitable, alternative providers that could offer better value or service to members.

Master trusts now represent the chosen method of delivery of nearly 1 in 4 companies in
the FTSE 350, given it is only a little more than 7 years since they entered the mainstream
market – that is amazing!

Contributions matter  and it matters who you work for.

With every member having the option to take their benefits from their DC scheme to wherever they like, WTW are right to emphasize the importance of a healthy employer contribution

If you are working for a FTSE 100 or FTSE 250 company, you are likely to have contributions well above the AE statutory minima. I suspect that WTW’s results are biased towards employers who care about pensions (and are prepared to pay for good consultants). Nonetheless, you have to look at these improving numbers with satisfaction as Gemma Burrows does

“Clearly it’s good news for employees that DC contribution rates held up during the recent challenging financial circumstances for many employers. However, we can see that from a retirement savings perspective less than 20 per cent of companies enrol at a default contribution rate in excess of the minimum level on offer. Therefore, there may still be work to do to overcome inertia in decision making so individuals understand and take advantage of the more valuable contribution rates that could be available to improve their own outcomes.”

It interests me that WTW report on the move to master trusts and the increase in sponsor contributions on the same slide. I am hoping that this is sending a subliminal message to sponsors that money spent on maintaining their own trust is money not being spent on improving the contribution rate. Let’s hope that consolidation improves contribution rates as WTW infers it may be doing already. I’d be interested to hear more from WTW on whether savings in scheme management costs are being passed on as improved contribution rates or whether consolidation is leading to a further dumbing down of pension sponsorship

WTW are right to point out that where there is an employer match available, take up of that match will settle at the default rate. So the question for reward and pension managers is to what extent they want to set the match low and target those people who have the sense and financial capability to opt-in to higher contributions and to what extent they want matters the other way round. Inertia will determine the take up of the match and the default is the “inertia setting”.

A final point worth making is that the vast majority of employers do not contribute to workplace pensions at anything like the rates advertised above. Can Government find encouragement in these numbers to nudge up the AE rate for all employers with workplace pensions as they have promised to do by the middle of this decade? Levelling up is devoutly to be hoped for.

Hope for CDC?

Willis Towers Watson are principal consultants to Royal Mail and have been firm supporters of legislation allowing that employer to sponsor CDC. For the first time in a WTW DC survey, I have seen mention of CDC as an option for other employers.

I doubt we will see many employers engage with CDC directly, but I suspect that master-trusts that offer CDC scheme pensions as a default  option for members in retirement – will be working at a commercial advantage in the consolidation process. Willis Towers Watson offers the market Lifesight, a commercial master trust which could take advantage of CDC.

Perhaps the title page of the report offers another subliminal message. Is this WTW’s view of investment pathways?

WTW’s perception of investment pathways?

With Guy Opperman intent on introducing legislation for multi-employer schemes like Lifesight, to use CDC rules from 2022, we ought to watch this space and look forward to next year’s report!

Thanks to the WTW team for an excellent paper , which I will return to in future days.