There has been a trend for employers to move from trust-based pension arrangements to contract-based pension provision.
Group personal pension (GPPs) plans are the go-to arrangement because they offer more flexibility compared with trust-based schemes. For example, an employee can keep contributing to a GPP once they leave their employer. However, there are serious governance considerations to be had.
A trust-based arrangement provides assurance that there is appropriate due diligence in place, with legislation providing clear criteria on how trustees must act and their fiduciary duties.
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In contrast, there are no governance requirements for a GPP – the responsibility sits firmly with the employee, who is usually a pensions novice (at best).
From 6 April 2015, providers of personal workplace pension schemes have been required to inaugurate an independent governance committee (IGC) to protect member interests and assure value for money. However, the legislation seems fundamentally flawed.
Pension providers foot the bill for their shiny new IGCs. As such, it is unlikely the committee would recommend that the employer tenders for a new provider in light of, for example, maladministration.
True independence would be in the form of an employer-led governance committee (EGC), which would allow for real critical challenge and protection of staff retirement savings. Employers should embrace the idea of an EGC for a plethora of reasons.
Now the default retirement age has been abolished, it is important to ensure employees are saving enough for retirement. If staff cannot afford to retire then the workforce is likely to be more expensive, because they will work for longer. Effective employee engagement will harness organic attrition, which is likely to have a positive impact on the organisation’s wage bill.
More importantly, leveraging pension provision shows long-term investment in staff and, in light of recent pension changes, pensions have become ‘sexy’ (and complicated).
Employers should ensure employees have the knowledge they need to make an informed decision in what is a complex industry. Staff are more likely to respond to their employer than absorb dry, generic, pension fund literature. Employers should pick up the baton and be less blasé with their pension strategies.
Gareth Hopkins is director at GJH Pensions