Every employer will be making an important decision when it chooses a pension provider. Many scheme members are not engaged in looking after their pension savings, which increases the pressure on employers to make sure employees are protected properly. How can employers be sure they are doing the right thing?
There are 10 top signs of a good pension provider.
First, it has a clear governance policy and independent oversight. This could be an independent trustee or a governance committee that includes individuals who are not employed by the provider.
Second, it can explain how it will ensure that workers’ interests are taken into consideration when it makes commercial decisions.
Third, its charging structure is clear and transparent so there are no hidden costs, and it can be compared to those of other providers. From April 2015, the government plans to introduce a charges cap of 0.75% and a ban on charging employees consultancy and commission costs.
Fourth, it offers value for money or, in other words, the costs and charges taken from members’ savings are competitive when considered against the benefits and services that members receive.
Fifth, it offers an appropriate default investment strategy, because it is likely that a large proportion of members will end up using it.
Sixth, the investment options offered to members qualify for protection and compensation arrangements, for example under the Financial Services Compensation Scheme, and the provider holds enough money in reserve to ensure it can survive as a business even if it encounters severe problems.
Seventh, it keeps the pension scheme’s records accurate and up to date, so members can be contacted and receive the right information to monitor their savings.
Eighth, it writes regular letters to members explaining how much they have saved, how their investments are being invested and how they have performed, what their projected savings will be at retirement, how much of their contributions will be taken in charges, and whether the desired retirement income can be achieved at their current rate of contributions.
In addition, the provider will be signed up to the Association of British Insurers’ (ABI) code of conduct on retirement choices, and can provide employers with examples of typical scheme communications sent as members approach retirement.
Finally, it has good and efficient administration, invests contributions quickly and has a track record of low numbers of complaints.
But what else can employers do?
The decision to use a particular provider must be kept under regular review so the scheme continues to be appropriate for workers. If an employer has an independent financial adviser or employee benefits consultant, they may monitor the scheme depending on the terms agreed when they were appointed. Employers should speak with their adviser to establish what, if any, monitoring they can carry out.
Some employers set up their own management committee to monitor their pension arrangements. See The Pensions Regulator’s guidance Monitoring your pension scheme – management committees for employers , published in July 2013, for further help.
A key point for employers to consider is whether they will offer to protect the committee and its members against any liabilities they may incur when carrying out their role, otherwise it may be difficult to find volunteers to sit on the committee.
Be aware that the rules covering the governance of workplace pensions are expected to change in April 2015. The government has announced that higher standards will be expected of the organisations that are responsible for running such arrangements. This includes new annual reporting requirements, which should, once they come into force, simplify the monitoring process from an employer’s perspective.
Helen Ball is head of defined contribution team at Sacker and Partners