DC spotlight: Bank of England says we’re poorer — but you can help your people 

Everyone in the UK needs to accept they are worse off as a result of the cost of living crisis.

That was the stark message from the Bank of England’s Chief Economist Huw Pill in April. 

With inflation above 10% and the cost of basics such as food rising faster, few employers can afford to offer a pay increase that maintains their employees’ standard of living. Even when inflation subsides it may take many years for living standards to return to pre-crisis levels.

But there are things you can do as an employer to ease the pressure on your people apart from paying them more. And with discretionary budgets tight, these actions don’t have to cost lots of money.

Your defined contribution (DC) pension scheme comes with a range of broader benefits that support the scheme’s members. Those benefits also help you recruit, retain and motivate your employees. 

Broader benefits include individual savings accounts (ISAs), general investment accounts (GIAs) and planning tools that help your people understand and organise their finances. Then there is life cover, critical illness benefits and the death-in-service lump sum.

Yet many employers are neglecting these benefits. Our DC MOT survey found that in the past three years more than half of employers hadn’t reviewed how their benefits matched up to those offered by their competitors or the changing needs of their employees. And 15% had never done so.

These organisations are spending large sums of money on benefits that may be poor value, uncompetitive in the market and of limited relevance to their people. 

Many employers are also failing to engage with their people about the relevance and value of the benefits they offer. The DC MOT survey showed only 35% of employers had checked in the past three years and almost half had never done so.

Many employers are struggling to hold on to their people amid labour shortages caused by people leaving the UK workforce. That situation has intensified during the cost of living crisis: Mercer research shows that two in five employees are considering leaving their job, often in search of higher pay. 

You may be providing valuable benefits that could keep your employees loyal but if you don’t tell your people about these benefits, how will they know about them? Many people have paid little attention to these benefits over the years because they never expected to face financial stress. Others would value these benefits but they don’t know or have forgotten you provide them. They may even be paying other organisations for benefits you provide for free.

Now is the time to tell your people about the benefits you provide and to check you are doing everything you can to support them. This will also reveal whether you are getting good value for the services you pay for.

Here are some specific areas to check on:

• Do you provide ISAs, GIAs and planning tools to help your people manage their savings?

• Total reward statements give your people a full view of the value they receive from you as an employer. Yet our survey found just 37% of employers offer these statements, potentially leaving employees unaware of benefits worth thousands of pounds a year.

• Are you providing your people with the best — and best value — support to help them manage debts and other aspects of their personal finances? Some pension providers, notably Mercer, are offering more services and support — often for free.

• Have you considered the implications of changes to the lifetime allowance (LTA) for your high earners? The government’s plan to scrap the LTA creates potential opportunities for your top earners to pay more into their pensions.

We are helping more and more employers to get the best value from their pension scheme and associated benefits. There is extra value and support out there if you ask. 

The easiest first step on this path is to take our DC MOT pension audit. The DC MOT is a quick, comprehensive pension plan review that benchmarks your scheme and benefits against other UK employers and Mercer’s view of best practice for DC schemes. It covers 12 key areas — from the savings vehicle and tax efficiency through to financial wellbeing and retirement adequacy.

DC MOT is also a valuable source of data and insight that draws on the hundreds of DC scheme reviews we have carried out. You can read more about the findings in our report — DC Pension Schemes: Value, Risks and Outcomes.

Get in touch to take a DC MOT and find out if you can save money, increase value and reduce risk to ease the strain of these challenging times.