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- Employers need to identify their pension scheme requirements before researching the market.
- A beauty parade should typically involve two or three pension providers.
- Switching pension provider typically takes between 12 and 18 months.
If an employer is dissatisfied with its pension provider, there is an extensive range of providers in the market from which to select a scheme, should it want to switch. Employers should start by identifying their scheme requirements, which are currently likely to be shaped by auto-enrolment legislation.
Rudi Smith, senior consultant at Towers Watson, says: “Employers need to understand what they are looking for from providers, particularly in terms of auto-enrolment, because employers have a number of duties to take on. They might want their pension provider to fulfil a number of those duties for them.”
The Pensions Regulator requires all plans used for auto-enrolment to encompass six key principles, including the need for schemes to be durable, fair and deliver good outcomes for members, and to have effective governance and monitoring.
After an employer has identified its needs, it should conduct a due diligence exercise across the provider market. Steve Herbert, head of benefits strategy at Jelf Employee Benefits, says this should start with assessing which providers can be used for auto-enrolment, and which are suitable for its staff. “Will the provider offer practical help for the employer to meet its duties?” he says. “These questions should be at the forefront of employers’ decision-making process for the next few years.”
Financial strength
Employers should also consider providers’ financial strength and market position. Some consultancies, such as Towers Watson and Punter Southall, undertake such research.
Smith also urges employers to check that providers can deliver a scheme in their required timeframe. “Look at their capacity to be able to take you on,” he says. “If you look at the staging dates for employers, there is a significant ramping up towards the end of 2013. If employers are looking at implementation over that period, they need to be comfortable their provider has the capacity to take them on.”
Alan Morahan, head of DC consulting at Punter Southall, adds: “Everyone is wise to the fact that resources may be an issue next year.”
Service provision is also key, says Smith. “Providers are now talking to employers about the services they can provide,” he says. “We have found providers have made changes, so check that the services they are offering will still be available through the process cycle.”
Finally, employers should consider whether they require, and can afford, third-party support to get through the auto-enrolment process. Jelf’s Herbert says: “Just offering a pension scheme is unlikely to generate a return on investment on pensions spend, but a wellrun and communicated package will do so.”
Morahan advises employers to also consider the communication they will have with their prospective account manager. “The [provider’s] presentation team may be the only employees they meet [during the beauty parade],” he says. “While very slick, this doesn’t have the human aspect that the administrator delegated to the account may bring to the table.”
The final beauty parade should involve two or three providers, and the whole implementation process typically takes between 12 and 18 months.
