With headlines focused on a rise in the cost of living, the need to obtain value for money has never been greater. When it comes to a workplace pension it is no different. Employers need to make sure their pension scheme is valued, acts as a tool to attract and retain employees, and allows people to retire when the time is right. Members should be looking for a scheme that makes the most of every pound invested, but also one that supports their decision making, whether that is building up a pension pot, or taking income from it.
All workplace pensions are subject to an annual review of value for their members. However, 2022 sees a more prescribed approach demanded from Independent Governance Committees (IGCs) and trustees (with less than £100 million in assets with their scheme).
In both cases attention must be paid to charges, but there is a greater focus on the investment returns delivered to members. Communications provided to scheme members must also be assessed by both, while trustees must also assess their governance activity.
This focus recognises two of the key determinants of good outcomes from a defined contribution pension scheme, investment growth net of charges and good decision making, especially at, and through, retirement.
IGCs must assess whether members of a workplace personal pension scheme are getting value for money, compared to other options in the market open to their employer. This will most likely be done by comparing cohorts of employers, for example, what are the options for 'employers like you' and how do those options compare in terms of value?
Trustees of schemes with less than £100 million in assets must compare their charges and returns with at least three large schemes as part of their value assessment.
While the value for members assessment is a job for the governance bodies, employers should be keen to understand the results, after all, it is employers that pick up most of the cost of providing a workplace pension, and that need to make sure they get a return on their investment.
While employers may be comforted by an assessment that their scheme stacks up against other options, it is still worth looking at how member outcomes can be improved. This might be as simple as understanding whether employers are taking full advantage of the communications options available to engage employees and promote the scheme as a benefit in kind.
If an IGC feels that employers are not receiving value it will request changes from its provider, and could write to impacted employers to tell them they could get better value elsewhere. For trustees in the same situation, the choice is to improve within a relatively short timescale, or to transfer their members out of the scheme and wind it up.
Employers with trust-based schemes need to be aware that improvements or a scheme wind up will result in additional costs. Most trustee boards will need access to a healthy annual budget for professional advice to satisfy the governance standard, while wind up will involve a one-off cost to assess the options available, communicate to members and wind up the scheme. When it comes to the choice of any new scheme going forward, employers, with the guidance of professional advisers, have a huge role to play.
IGC reports will be issued in September, while trustee reports will be due within seven months of the scheme year end. Employers should stay close to their scheme’s assessment as although the assessment is about improving value for members, it has the potential to improve employer return on investment too.
Dale Critchley is policy manager at Aviva Workplace Benefits, Savings and Retirements.
