The shift from defined benefit (DB) to defined contribution (DC) pensions has not just changed workplace retirement plans, it has moved all the risks from employers to employees. While this gives organisations cost control, it also means they have a crucial role in helping staff secure good retirement outcomes.
One of the biggest steps employers can take? Contributing above the legal minimum. The [PLSA’s] Pensions Quality Mark promotes higher contributions and employer matching which encourages employees to save more. But this new world also places huge importance on employers’ choice of pension provider.
Outsourcing pensions to a master trust or group personal pension (GPP) scheme is increasingly popular. These are typically the most convenient for employers, because the provider manages everything: investment, administration, governance and member communications.
However, employers can often fall into the trap of focusing solely on cost when selecting a provider. Although that is understandable, especially when moving away from in-house provision where members do not cover the costs, there is much more to consider.
The real question is not “what’s the cheapest option?” but instead, “what’s the best value?” Net returns matter most; choosing the cheapest option does not help if it offers poor performance. The goal is to grow the pension as much as possible by retirement, and minimising fees alone will not do this.
Employers should match their investment strategies with workforce needs, looking beyond typical investments to options like infrastructure or private credit. These tend to offer higher returns over time, making them ideal for long-term growth.
Equally important are member communications, governance, and, increasingly, high-quality retirement products to help employees access their savings effectively. These factors will become even more crucial in the coming years as the DC generation begins to retire en masse.
That is a lot to consider beyond cost, especially for employers with smaller (or no) in-house pension teams. This is where advisers are valuable, helping employers evaluate options and tailor solutions to their people’s needs.
By prioritising long-term value over cost, employers can help their workforce achieve financial security. A good pension is not just a perk; it is the foundation of a financially stable retirement.
Ruari Grant is senior policy lead, DC, master trust and standards at the Pensions and Lifetime Savings Association (PLSA)
