Associated British Foods reports 3% AE opt-out

The food and retail group undertook a widespread communication campaign including focus groups, personalised letters, video and even animation to explain why a suite of target date funds provided the best default strategy for members.

The company’s pre-staging campaign had seen 9,000 staff join the scheme. The employees enrolled in February were from the group’s food businesses, as its retail employees only started auto-enrolling at the beginning of this month.

“People like and understand the [TDF] approach as it takes away the need for them to make decisions in areas in which they do not feel comfortable,” said Colin Hately, the group’s pensions director. “While the funds might be complex under the bonnet, they are actually simple concepts to explain and understand.”

The funds, provided by AllianceBernstein, are structured in three-year ‘vintages’ based on a saver’s retirement date. Since the funds were established in September, have all outperformed their benchmarks, according to the company.

“Cost was an important factor, and while our commercial terms are confidential, no member using one of the default vintages will have any charges greater than 25 basis points a year, including administration,” Hately added.

The pension scheme has also seen a “significant” number of self-selecting members opting to switch for a more appropriate TDF within the range to suit their needs, reflecting engagement with the scheme design.

Samantha Waterhouse, communication consultant at Shilling Communication, which carried out the campaign on the choice of TDFs, said initial focus groups found any correspondence on investments was likely to be met with “scepticism and negativity”.

“We didn’t want to overwhelm members with information about a subject they didn’t understand and really appreciate – so we took a more considered and phased approach,” she added.

How ABF chose its default

This investment strategy is relatively new to the UK market, with the National Employment Savings Trust being the most prominent scheme to have adopted it.

“We’re finding TDFs are becoming much more mainstream and [there is] a growing recognition that they offer a better default investment approach for members,” said Tim Banks, head of defined contribution sales and client relations at AllianceBernstein, who likens the set-up to “age-appropriate” TDFs.

The broad difference with a traditional lifestyle fund is that rather than an automatic derisking framework, the ABF funds have a portfolio manager controlling the fund on a daily basis.

The employer has said the attraction of this approach was that members only need a single fund providing them with an asset allocation that is changed according to their needs for risk and return at certain stages of their working life.

“This makes administration simpler and less costly than lifestyle approaches, where members individually own holdings in separate funds to create their asset allocation,” said Hately.

The fact the asset manager is responsible for the allocation frees up the scheme’s trustees to concentrate on performance and overarching objectives, he added.

Schemes looking to explain a complicated investment strategy to employees could follow a four-step approach, according to Waterhouse.

This would involve listening to members in order to discover why they are unengaged with their pensions, breaking down information into manageable chunks, tailoring messages to different employee categories and getting rid of jargon.