L&G changes default fund for auto-enrolment

EXCLUSIVE: Legal and General has used auto-enrolment compliance as an opportunity to review and change its stakeholder pension scheme’s default investment fund and reduce its annual management charge (AMC).

The scheme’s default fund is currently the L&G UK Equity Index Fund, but this will be changed to the L&G Multi Asset Fund on 1 April to align with Legal and General’s staging date.

Simon Elliott, pensions and benefits manager at the financial services firm, said: “Legal and General, as our provider, has looked at the default fund and decided that something with slightly lower risk would be more appropriate.”

The AMC used to be 0.5% for the first £50,000, but this will be lowered to 0.4% from 1 April.

For the majority (5,000) of Legal and General’s employees, the pension scheme has a basic employer contribution of 5%, while staff who also contribute 5% will receive a further employer match, making a total contribution of 15%.

Employees who are at manager grade (around 2,000 staff) receive a 10% basic employer contribution, so with a 5% employee contribution, they can receive up to 20%.

To comply with auto-enrolment regulations, Legal and General will also ask employees to pay a default contribution of 2% into the pension scheme if they do not already contribute. Elliott added: “It is a default, so if they want to go back up to where they are, we are happy to let them do it. If they want to reduce to 2%, we’re letting them do that, as long as they are aware it will go up in the future.

“We are very keen to ensure we have the same flexibility, but we also wanted to encourage pension savings for all the good, sound reasons.”

Legal and General started communicating auto-enrolment to staff with letters in October 2012. These were followed up by roadshows at its main offices. Elliott added: “These were aimed at telling them about our plan changes and getting some feedback about the changes.”

It also communicated auto-enrolment through its Living off the state pension project, which challenged volunteer employees to try to live off the state pension.

In February, Legal and General ran another series of roadshows, which built on feedback from the October events, including requests from employees for more details about their investment options.

Elliott said: “We repeated some of the basics, and then covered the investment options that were available, the types of funds, attitudes to risk, and looked at the tools available.”

Even though it is a pension provider, Legal and General does not take the financial savvy of employees for granted. “There are hot spots and cold spots, to be fair,” said Elliott. “The challenge with communication is always to get it at the right level. We are aware that there are some people who are very engaged with the idea of the pension, but we also have people who work in call centres and pensions aren’t their thing; they are saving for a home or doing other forms of saving.”

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For employees who were not able to attend the roadshows, Legal and General recorded a video for staff to watch online.

All employers that offer their employees Legal and General’s stakeholder pension scheme will also benefit from the default fund and AMC changes.