Employers should measure pension scheme value

Employers should measure the value of their pension schemes to ensure they are fit for purpose, according to Debbie Harrison, senior visiting fellow at The Pensions Institute at Cass Business School. 

Speaking at the Employee Benefits Pensions and Workplace Savings Summit on 31 January, Harrison said employers should start by reviewing their scheme features. 

She said: “It’s a tricky concept, but we need to be thinking about what this means. As an HR or pensions person, then you need to know what features you can look at, and not just be overwhelmed by all the amazing things that you can do with platforms, and be thinking about: ‘are these features that my members are going to use?’.

“What we don’t want is a cheapest is best market. If you go beyond that, then how can you as a provider and as a consultant explain to an employer ‘this is a bit more, but it’s good value for your members’?”

Employers need to educate members about the cost benefits of their pensions schemes to enable them to focus on more meaningful issues, such as asset allocation and diversification, which are key determinants of a pension scheme’s value.

“We focus very much on investment strategies, which are really crucial to how good a [defined contribution] DC scheme is going to be, ” she said. “Diversification’s really important here, but you can’t do that if you’re fighting with the lowest common denominator, which is charges.”

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The Pensions Institute is currently researching the definition and measurement of value in default funds for auto-enrolment, which will include analysis of asset management and scheme charges and governance.

Harrison said governance required more of a qualitative approach due to the variations of governance structures across, for example, trust-based pension schemes, including master trusts and super trusts.