Mercer ‘DC MOT’ report reveals employers and employees could be paying less and getting more
- 68% of firms have failed to review their pension scheme design in the last few years.
- 34% of employers have not reviewed member fees for three years or more.
- Only 45% of employees believe pension scheme investments are in line with company ESG policies.
London, 14th March 2024 – Mercer, a global leader in redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being, and a business of Marsh McLennan (NYSE: MMC), today published a new report, ‘DC MOT - Review, engage and align: how to achieve value from your DC pensions’. The report highlights gaps in firms’ oversight of pension schemes for employees.
Of those firms surveyed, almost seven in ten (68%) admit they failed to review their pension scheme design in the last few years. This potentially expose firms to reputational risk and leaves employees paying more than necessary for their schemes. The report suggests firms carry out reviews of their schemes to ensure they provide the best outcomes for scheme members.
Mercer’s report contains detailed analysis taken from its DC MOT reviews of over 360 pension schemes, covering over three million UK members and over £50 billion in DC savings. The DC MOT looks ‘under the bonnet’ at 12 key data points to gauge how well a firm is overseeing its pension and benefits schemes for its employees. The results are benchmarked against other UK employers and Mercer’s decades of expertise. Mercer’s research highlights that whilst employers may be meeting minimum legislative requirements, they and their people may be missing out. Mercer’s research highlights that simple changes to the way employers approach DC pensions could increase the benefits individuals receive without increasing the cost or work for the employer.
Ken Anderson, DC and financial wellness principal at Mercer said:
“Our second annual survey of DC pension schemes reveals a number of key areas where employers can do more to ensure they are achieving best outcomes for members. Just as you need to ensure your vehicle is road-worthy every year, firms looking after our savings for retirement should be ensuring their pension schemes are fit for purpose. At a time of an acute cost of living crisis and other financial market volatility, it is concerning some firms have not reviewed their schemes recently.
“The pension market has evolved in recent years, in particular, charges have fallen and support for members has improved. To capitalise on these changes, firms need to proactively seek better value from their scheme rather than just assuming it is working hard on their behalf.”
Mercer’s report also indicates a rise up the agenda of ESG issues, highlighting the importance of ensuring a scheme aligns with the organisation’s corporate values and aims. Four in five (81%) employers indicate they have corporate environmental policies but less than half of their employees (45%) believe the pension scheme is in line with these policies.
“This potential mismatch between a firm’s corporate ESG policies and its pension structure could lead to investments allocated to unsustainable investments, which if discovered could pose a reputational risk to the organisation,” added Mr Anderson.
The report also shows employees are potentially missing out on best value member fees because 34% of employers have not reviewed member fees within the last three years. This can directly impact the amount of money members receive in retirement. Failure to review other aspects of schemes, might also mean that employees are missing out on legitimate ways, such as salary sacrifice, to reduce the tax they pay and increase the amount of money they receive.
Mercer’s analysis also finds three-quarters (75%) of trustee/governance committees do not fully represent the diversity of their organisation. This is an area of focus for the Pensions Regulator and a key tool for ensuring full engagement of staff.
The report covers a wide range of other issues, but Mercer makes clear that in today’s unpredictable environment it is more important than ever for organisations to review their DC pension scheme and benefits.
All employers in the UK are required by law to automatically enroll workers earning at least £10,000 p.a. and aged between 22 and State Pension age into a pension scheme to save for their future.
The full report is available online here.
Ends
Notes to editors
Find out more about the Mercer DC MOT review