A 10,000-member DC scheme has improved its performance and boosted member engagement by slimming down the number of investment choices it offers
The amount of members of one large defined contribution scheme opting for default fell by 50% after it changed its investment strategy and launched a broad communication campaign.
How to cut choice and engage staff
Schemes and advisers gave the following tips for schemes to improve their investment governance:
Slimming down investment choices can help engage members.
Describe funds by how risky they are, not by investment class.
Keep communications simple and targeted to age groups.
Use electronic surveys to glean member engagement preferences.
Communicate via interactive websites and face-to-face sessions.
The scheme offered three simply branded investment strategies and reduced the number of self-select funds on offer to members.
The percentage of members opting for default fell from 90% to 40% following the changes implemented in January.
Two-thirds of members said they were engaged with their investment choice following the review.
Members who make active investment decisions are more likely to be engaged with their scheme, which should better enable them to meet their retirement goals.
Ken Anderson, head of DC at Xafinity, worked to overhaul the strategy at the scheme.
“As people understand and engage with the scheme more they recognise and appreciate the value of the benefit they are being provided," he said. "It leads to a happier workforce."
Simple choices
The scheme began to question its investment options following last year's market volatility and the removal of the default retirement age.
The trust-based scheme has approximately 10,000 members. Its management decided the current 26 self-select funds and one default option were inflexible.
The new strategy offered three risk-graded options: cautious, balanced and adventurous. The scheme reduced the number of self-select funds from 26 to 16.
Once the new fund options had been decided the details were delivered to staff through online and face-to-face communications, as well as interactive seminars.
Schemes must consider the needs of the member – the profile of the membership is crucial
Nita Tinn, ITS
Anderson said face-to-face communications were the most successful at engaging with the workforce.
The communications formerly consisted of a booklet and a range of asset class options, without further support.
“Previously the scheme offered a range of funds that covered broad asset classes without really thinking what that would mean for members who weren’t adequately informed or supported to make use of that choice,” he said.
Electronic surveys assessed members’ understanding and evaluated how strategies could maximise engagement to ensure the pension arrangement was appreciated.
The scheme's new website includes an interactive section using data from the Office of National Statistics to produce a profile and target for a typical member.
Communications were focused on member outcomes, which encouraged members to be more engaged with their investment choice.
Correspondence is important when flexibility increases investment choice, which can make the scheme more complex to members.
Anderson added: “The trustees are looking to launch a communications strategy focused on different demographics so the message used for those staff will be based around their age profile.”
Members aged in their twenties and thirties have different requirements to those facing retirement age, he added, so would benefit from different communications.
Communications to engage
Nita Tinn, director and professional trustee at Independent Trustee Services, said she was in favour of the scheme's approach.
Changing the approach is not straightforward
Steve Bowles, Schroders
“Schemes must consider the needs of the member – the profile of the membership is crucial,” she said.
Communications should be simple, cost-effective and be targeted to each age range. This could include setting up Twitter accounts to access younger employees.
“Traditional newsletters don’t hit it any more," Tinn added.
"The DC member is only concerned about their own fund – they want to know what it is going to do in retirement, not about how the scheme membership is doing."
Good relations between trustees and employers are important to ensure new joiners understand their benefits. Regular meetings will also help improve this understanding.
Stephen Bowles, head of DC at Schroders, said most members struggle with even 10 investment choices.
“Changing the approach is not straightforward – there are practical issues of what to do with that existing money and how to implement that," he said.
Trustees should spend most of their governance budget on the default, Bowles added.
He said: “Nobody will thank schemes or pensions managers for regularly changing the schemes and moving members’ money around."
