Prudential Staff Pension Scheme has made some tweaks to its benefits set-up to meet the legislative requirements for auto-enrolment, including setting its multi-asset lifecycle strategy as the scheme default.
The defined contribution scheme is being used to meet the insurer’s statutory auto-enrolment duties, which came into effect on May 1. Employers using current schemes to meet their auto-enrolment obligations need to make sure their arrangements comply with the reform.
For Prudential this included its multi-asset lifecycle offering becoming the automatic investment option for new members electing not to make a contribution and investment choice.
It has also introduced a guarantee to ensure total contributions are no less than the legislative minimum requirement – initially 2 per cent of qualifying earnings – said the scheme in a newsletter to members.
“Although almost all employees are already auto-enrolled into the DC section of the scheme, there are some limited changes required... to meet the very specific legislative requirements,” it said.
Kevin LeGrand, head of pensions policy at Buck Consultants, said lifecycle default strategies have gradually become more common, growing in popularity even before the inception of auto-enrolment as an effective way of coping with a large number of employees.
“The tendency now is to go for some kind of lifecycle or lifestyle fund – or a target date fund, which is becoming more popular now,” he said. “In both cases it is not a perfect solution because it has to be done on a generic basis and therefore you are not looking at individual members.”
Despite default funds not being fixed around one member’s requirements, these kinds of automatic investment options are becoming more sophisticated at targeting people’s needs, he added.
It is important for schemes to try and carry out good fund governance and understand what is suitable for their workforce, said Iain Fox, director at employee benefits consultancy Fidelius.
“Lifestyling is all well and good but some schemes start lifestyling 15 years out, some 10 and some seven,” he said. “Some do it in a very fixed way and others more dynamically, so it really is about understanding, and whether or not the employer feels that they should be bespoking [a fund].”
The £50m trust-based DC scheme has 2,201 active members and 100 deferred members, according to the NAPF Yearbook 2012.
Earlier this year it opened up the option for active members to transfer registered pension plans into its DC section to help them better manage their retirement outcomes.
Other schemes have explored ways of making their default options more attractive to members. In December, IBM said it would be revamping its DC default options to give members greater flexibility in their investment choices.
It replaced its default fund with two lifecycle options offering different levels of investment risk for members reaching retirement.
