Data Analysis: Employee engagement with pension schemes is topping the agenda for businesses, with many saying the freedom and choice reforms have improved schemes' ability to generate good retirement incomes.
The introduction of freedom and choice for defined contribution pensions last year has added complexity to the design of existing schemes, but the expanded range of options could increase the overall appeal of DC saving for members.
The research, entitled ‘A View from the Top’, which was conducted by the Confederation of British Industry and consultancy Mercer, surveyed 166 organisations with roughly £115bn in pension assets between them.
The report found employee engagement was the top priority for business leaders, with 29 per cent saying it was their main focus. This was followed by attracting and retaining staff, at 25 per cent.
Source: CBI/Mercer report
Scaling up engagement is crucial to ensure a comfortable income in retirement for DC savers, as research from the Pensions Policy Institute found those who entered their scheme through auto-enrolment are still at risk of inadequate retirement income unless contribution levels increase.
Cost of AE
However, those surveyed by the CBI were against driving up the statutory minimum contributions. The report stated: "Business has always recognised that for most people, saving beyond the statutory minimum will be necessary for an adequate retirement but it has to be voluntary to ensure auto-enrolment works for all."
Close to half of the respondents said the introduction of freedom and choice increased the effectiveness of DC pensions in ensuring employees could afford to retire, though the research noted: “This may be in part because the publicity around them has helped to highlight pensions and their potential value to employees.”
Source: CBI/Mercer report
Little further detail is given to quantify how much more effective DC pensions have become since freedom and choice, or whether they are simply perceived as more effective.
Late last year, transnational government forum the Organisation for Economic Co-operation and Development found that while auto-enrolment had increased coverage, large sections of the population including single men and women, the self-employed and those aged 55-64 faced at least a 50:50 risk of not retiring with an adequate income.
Additional measures
Schemes appear to be taking the risks seriously. The CBI report found 47 per cent were looking at introducing additional measures for their schemes such as guidance in response to the introduction of pension freedom. A further 36 per cent were reviewing their schemes to ensure they were fit for purpose.
Source: CBI/Mercer report
“This ranges from checking compliance on the one hand to reviewing whether there is a need to offer a range of different default funds,” the report said.
However research from the Financial Conduct Authority last month showed many schemes had shied away from offering access to the full range of options within the scheme; 77 per cent of savers needed to change contracts with their provider to access partial-encashment drawdown.
Source: FCA
However, others have sought to improve their members' ability to take advantage of the flexibilities. For example, earlier this year the BBC began offering paid-for financial advice to its defined benefit members who are looking to transfer out with a value of £30,000 or above.
