Is your Defined Contribution pension scheme ready to improve overall value in 2023? 

With a tough year ahead, it’s time for defined contribution (DC) schemes to focus on overall value.

As the effects of the pandemic still reverberated, the crisis in Ukraine brought further volatility in 2022. The situation in Ukraine has had a significant impact on the global economy, investment markets, pension funds and their members.

High inflation has put financial pressure on employers and triggered a cost of living crisis for households. In the UK this situation has been compounded by political and economic uncertainty that has affected interest rates, gilt yields and the broader outlook.

This article sets out five priorities for defined contribution pension schemes and potential actions that DC schemes and employers might consider taking to address these priorities.

In challenging times, employees are looking to their DC pension schemes and employers for support. That’s why financial wellbeing, retirement readiness and communication and engagement lead our list of priorities for 2023. These intertwined considerations are all about refocusing on members.

Sustainability will still be a priority as schemes seek to keep up with regulation and best practice. As a result, consolidation in its different forms will remain on the agenda as schemes consider how best to deal with the rising governance burden.

We view these priorities for 2023 based on two broad themes:

  • Data is the key to establishing how your scheme (and broader benefits available to employees) compares with the wider market and identifying ways to drive better outcomes for members
  • Value is the overall package that your scheme and benefits offer. This includes costs and what you get for your money, the support members receive and the likelihood that they will have enough to retire.

Summary

The five priorities in this article are interconnected. Taken together they could collectively deliver more overall value for members than in isolation.

Financial wellbeing has come to the fore during the cost of living crisis — employees are looking to employers to support them.

This ties in with retirement readiness by refocusing on members’ outcomes.

Financial wellness and retirement readiness work better if members understand the benefits provided and their views are sought. Communication and engagement are vitally important now.

Sustainability is important to members and engaging with them on ESG can get them thinking about their pensions. ESG is also important for member outcomes because investments should reflect the risks and opportunities presented by ESG.

These imperatives all add to the workload schemes face. Consolidation in its various forms will remain high on the agenda in this environment.

Data is the key to deciding which options are best for members. We can benchmark your scheme against the market to see how you compare and how you can improve.

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