Xerox underlines member responsibility in DC plan

Like other companies, the document management company decided in 2009 to close its UK final salary scheme, due to the high cost burden associated with running such a plan. 

On January 1 employed members will transfer to the DC plan provided by BlackRock. Industry experts have urged schemes to be clear and honest in how they communicate the shift. 

In communications by the company, which included documents and workshops, the company emphasised the critical differences for members under the new DC regime. "You will need to become much more involved in managing your own pension," it told members in a factsheet.

Members will be defaulted into a lifestyle scheme at a contribution rate of 3 per cent, with the company contributing 5 per cent, but will be able to make changes to these levels from February 1 2014.

This was chosen as the member contribution rate as for most people “it represents the closest to the net cost of being a member of the Xerox Final Salary Pension Scheme," director of pensions Paul Hopkins said in an online workshop. 

Members of the Xerox FundXtra plan have also been given the opportunity to switch to the new plan as “the BlackRock Plan offers better value for money as the company pays higher contributions than the FundXtra,” Hopkins said in a virtual presentation. 

Extra contributions will be paid to members of the final salary scheme that are most affected by the switch. Hopkins said it was estimated 12 per cent of current members will qualify and will be informed by December 31. 

Communicating a large change such as a move from DB to DC should have two stages, said Paul Macro, senior DC consultant at Mercer. The first should concentrate on the reasons for the switch and the second stage should look at the new arrangement. 

"[The second stage] should concentrate on explaining to members what a DC plan is about and why it is different from a DB plan," he said. 

Clarity and honesty

The communications should be around the need to make decisions about their pensions in a DC plan. "Employees need to understand that how much they put into the plan will dictate what they get out," Macro added.

Clarity and honesty in communicating the change is critical, said Karen Heath, chief engagement officer at communication company AHC.

"There is little point in hiding that the switch is as dramatic as that. That now they are going to have to do something to involve with their pensions if they [are to] stand any chance of getting a good pension at the end of the day," she said.  

Sooner rather than later is best when communicating this kind of change. "Really [schemes] want to be talking about how to plan the communications about 12 months out from the effective date of the transfer," said Jerry Edmondson, head of communications at consultancy Hymans Robertson.

"Communications will then take place in an incremental and phased basis over the balance of that 12-month period."

The media channels used by schemes will be determined by media landscape and preferences in the organisation. Heath advocated a mixed media campaign, as people learn and take in information differently.  

It is important to emphasise consistency of message when communicating a scheme change, she added. The scheme declined to comment on the changes.