From the blog: It’s time to turn words into action. While schemes have been extolling the feted ‘better member outcomes’, little movement is taking place to turn hopes and dreams into components of success.
Today’s survey findings from consultancy Aon Hewitt, gleaned from around 300 defined contribution pension schemes, show that more than half (57 per cent) have placed this focus on outcomes at the very top of their agendas.
But those same schemes are failing to help themselves and their members monitor this journey effectively.
For example, the replacement ratio – despite recent critique of its true relevance in the post-freedom world – is one of few metrics available to help assess whether members’ savings are on track.
And yet only a third of schemes knew what the replacement ratio would be for a member who stayed in that scheme for their whole career. Larger schemes were not much better, with slightly more than half knowing this figure.
Knowledge of expected replacement ratio
Source: Aon Hewitt
Engagement
Trustees and employers see themselves as the most important sources of information and education for members.
However, interestingly, while trust-based schemes believe this responsibility falls more on the employer, the government is deemed more important by those using a group personal pension or mastertrust.
Whose role is it anyway?
Source: Aon Hewitt
Least-worst option: defaults and design
Encouragingly, over the past year, two-thirds of respondents have reviewed their default option.
But despite this, four in 10 scheme strategies are still targeting an annuity at retirement, despite the expectation that most members will choose a mix of drawdown and cash. Forty-four per cent are now targeting a combination of annuity, cash and drawdown.
Source: Aon Hewitt
Designing a default strategy that will suit all members’ choices at retirement is no mean feat, but monitoring your workforce’s needs and wants will help inform the decision.
Earlier Aon research in 2014 found 70 per cent of people wanted a product with the features of an annuity, either at retirement or some point later. One in seven prioritise flexibility, while one in 10 said they want access to all their cash immediately.
These factors are starting to influence scheme design. Slightly more than 40 per cent of respondents to the consultancy’s latest research are either developing a preferred drawdown solution or already have one in place.
Do you allow uncrystallised funds pension lump sums for a continuing member?
Source: Aon Hewitt
Have you put a preferred drawdown solution in place?
Source: Aon Hewitt
Governance
Most respondents felt they were not spending enough time on DC, largely thanks to time pressures. This figure fell to 43 per cent for larger schemes from the aggregate 73 per cent.
What prevents you spending more time on DC matters?
Source: Aon Hewitt
In order to turn wishlists into better member outcomes, more work needs to be done, yet schemes are already stretched on time.
With further pension changes expected over the next couple of years, we could be at a critical juncture in terms of some schemes changing their overall governance structures to better manage, or avoid, perceived burdens.
