Keeping members informed and happy

My eldest is learning to drive. Our first outing was to a business park on a Sunday morning where we drove around vast but empty car parks.

As we did so, it reminded me of my own experience of learning. Not least because he was making some of the mistakes I could remember making.

One of these was to look down as he changed gear. His sight would drop, he would fumble to find the right gear, concentrate on releasing the clutch and applying the correct amount of accelerator and then raise his eyes again.

Of course, we had travelled 10 to 15 metres while he looked away. Not a problem in a car park, but dangerous on the road.

I got him to change his focus: “Look at the road ahead, not the controls. You are more likely to reach your destination safely.”

The governance objective for anyone running a defined contribution scheme should be to provide robust and proactive defaults and an environment where members can make informed decisions.

The key decision a member can make, that will have the most impact, is how much to contribute, and the way to help them make an informed decision is to focus on its outcome.

This can be done by answering three questions:

1. At what age do you want to retire?

2. What income do you want when you retire?

3. What margin of error can you accept?

Stochastic modelling based on a reversed version of the current generation of DC modellers – all under the bonnet and out of sight of the member, unless they really want to look – produces a contribution rate. If the contribution is affordable the member is happy.

If the contribution is not affordable, the member can reset their ambitions to a more realistic level. The key point is, delighted or disappointed, they will be informed in time to do something about it.

It is likely most members have unrealistic ambitions. If, however, these are managed, you can achieve the following ends:

• The risk to the member themselves, their employers and everyone else connected to the scheme are reduced.

• It’s likely members will contribute more, as they strive to achieve their goals.

This outcome focus is no different from keeping our eyes on the road. Look towards your goals and you stand a chance of reaching them. Look down and you are more likely to end up in a ditch.

Richard Butcher is managing director of PTL