Need to know:
- A starting point is to send out a detailed tender and set up a working party, including representation from payroll and finance.
- Employers should check what their members’ digital experience will look like, as this will shape their appreciation of the scheme.
- Ultimately, the scheme can only be as good as the default fund’s performance.
Selecting a new pension provider is a big project. The first step is for an employer to clarify its requirements by outlining its needs in a tender document which should ask each provider how it will deal with any special requirements and to comment on its charges, investments, administration, governance, implementation support and member engagement, including technology, communications, support and advice.
There will be nuances between providers whether in investment, taking benefits or other components, so the process will likely be easier if guided by an independent consultant with an understanding of the providers’ propositions.
Engage with stakeholders
The next step is to set up a working party. Jessica Clayson, a principal in defined contribution (DC) consultancy at LCP, says: “It will be important to engage with key stakeholders early in the process, and define objectives. In our experience, a joint working group with representatives from the trustees of the existing arrangements, if applicable, as well as members of HR, payroll and finance functions, works well. Early alignment ensures practicalities like payroll integration and communication strategy are considered from the outset.”
This is critical, as how well the provider integrates with an employer’s payroll and benefits systems will impact data transfer and accurate contribution handling, which are vital for compliance.
Once a short list has been identified, arrange to meet. “Meeting in person allows [the employer] to determine who [it will] be working with going forwards, and to consider if [it will] be comfortable partnering with the provider in the long term,” says Hannah English, head of DC corporate consulting at Hymans Robertson.”
This is also a good time to establish whether a provider’s terms are their best and final offer, and whether any existing relationships could be leveraged to achieve better terms.
“Look for clear member communications, user-friendly portals or apps, and support tools such as guidance, retirement modelling or financial wellbeing education,” says Clayson. “This matters because engaged members are more likely to make informed decisions, contribute more, and feel positive about you as their employer. It also reduces the burden on HR teams to handle basic pension queries.”
Digital experience
Pension providers all do the same basic things: admin, investment and communication, says Robert Cochran, retirement expert at Scottish Widows. “But there are huge differences in how they go about this. Take pension apps; there is a huge difference from one provider to the next. Not just what you can do but importantly how easy they make it for you complete transactions, get support and answer questions.”
Employers should ask to see exactly what the member digital experience will be, as this is how employees will experience their pension on a day to day basis.
“Employers may also wish to think about service level agreements; whether the provider measures the quality of calls, not just speed to answer and how long a call takes; and what support the provider has in place for members in vulnerable circumstances,” adds Saffron Lovell, head of workplace business development at Aviva.
Members are automatically enrolled into the default fund, so it must be well-designed, and aligned with members’ retirement needs. If you were buying a car, the default fund would be the engine, says Clare Stinton, head of workplace saving analysis at Hargreaves Lansdown. “How is it performing against peers in the same category, and what is the charge? Most of [a] workforce will be in this, so it needs to deliver long-term value.”
Add-on benefits
Whether add-on benefits are a deal breaker will depend on whether they align with the needs of a workforce. “They should complement core service quality rather than distract from it,” says Clayson. “These extras are only worthwhile if they are accessible, relevant, and used.”
While some pension providers include expert guidance as standard, others treat it as a paid-for bolt-on, so check what is included from the start, says Stinton. “If considering a provider that offers a financial wellbeing service, ask whether they’ll run a complimentary session on a topic like budgeting, or responsible investing. When done well, these services provide vital support to staff facing debt or financial pressures, boost engagement with workplace benefits, and enhance overall productivity.”
Whether a provider will still be operating in five years is now more critical than ever, as the government has introduced a “scale test” for DC schemes, requiring them to have at least £25 billion in assets under management (AUM) in a single default arrangement by 2030.
“The government’s drive for pension consolidation, and the new £25 billion scale test, will undoubtedly lead to a smaller number of active providers in the market going forward,” says Stuart Reid, distribution director at People’s Partnership.
Choosing a provider with staying power and a good reputation reduces the risk of future issues, penalties, or damage to the organisation’s own reputation.
