Defined Contribution pension schemes; value, risks and outcomes 

Many pension schemes offer poor value because the market has changed while schemes have stayed still.

Employers provide pensions and employee benefits to recruit, retain and motivate their staff and support HR planning by helping employees save for their retirement. However, these aims are undermined if DC schemes receive poor value, store up risks and fail to get the best outcomes for members.

Though your scheme may have remained the same, the environment in which it operates has transformed even in the past few years — let alone over the decades since many DC pension plans were established.
For example:

  • Charges have fallen.
  • More services have been made available.
  • Governance requirements have increased.
  • New savings vehicles have emerged.
  • Employees’ needs have changed.

Many employers have not reviewed their advisors or providers for several years and have failed to check that their processes have kept pace with regulatory changes and best practice on issues such as sustainability and evolving member needs ­— especially during a cost of living crisis.

For this report, we have used our DC MOT pension audit to analyse more than 300 schemes with different advisors that together account for more than 3 million UK members with £50 billion of DC savings.

Our analysis indicates that many schemes have plenty to do just to get up to date with where the market is now. Not doing so risks damage to your reputation, your corporate goals and, importantly, the retirement outcomes of your scheme’s members.

The positive news from our findings is there are many ways you may be able to get better value, protect against potential risks and achieve better outcomes for your scheme members if you ask the right questions

The report provides insight into where your scheme stands in the market and checklists of steps to help you make improvements and provide better outcomes for your members.

Here are some of the report’s key findings:
  • Increase value
    of employers have not reviewed their DC providers in the last two years. They could be missing out on lower charges and new services now available.
  • Reduce risks
    of employers are not completely confident they would pass the Pension Regulator’s auto-enrolment spot check. Failing could lead to fines, rectification costs and reputational damage.
  • Improve outcomes
    of employers do not know what level of pension their DC members expect to retire on. Defining their needs and helping them to achieve their goals is arguably the most important aspect of pension provision.
  • 65%
    of employers have not reviewed their contribution or broader benefit design in the last three years. As lifestyles change, their scheme may no longer be effective as a recruitment, retention and motivational tool.
  • 52%
    of employers do not know if their DC plan investments reflect the employer’s ESG beliefs. Getting this wrong could create reputational and commercial risks.
  • 38%
    of employers do not offer financial wellbeing tools or support — features available via many DC schemes. Employees are looking to employers for support during the cost of living crisis.

What is DC MOT?

Mercer’s DC MOT is a free, comprehensive DC pension plan review that lets you benchmark yourself against other UK employers and against Mercer’s view of best practice for defined contribution schemes. It helps you find out if you can save money, increase value and reduce risk.
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