Is your DC pension scheme resilient for the challenges of 2024? 

2023 was a challenging year for the UK’s defined contribution (DC) pension schemes – and there is little sign of conditions easing during a period of economic, regulatory and geopolitical upheaval.

Given this backdrop and as we look at this year, it’s time to consider the resiliency of your scheme and members to navigate what we expect is on the horizon. We think these are the four core themes for the year ahead:
  • Govern or consolidate

    DC schemes face a continuing deluge of regulations and initiatives that ratchet up the governance load. Delegating some or all of the DC governance responsibilities may be appropriate to consider.
  • Inflation hits home

    Despite its downward trajectory, heightened inflation (as well as increased volatility) affects DC pensions and associated benefits across the board — from members’ financial wellbeing to potential retirement outcomes.
  • Member outcomes

    Helping members understand what their finances are likely to look like in retirement.
  • Sustainability

    Pressure (from a number of sources) to take action on environmental, social and governance issues continues to intensify. Has your scheme determined what’s most appropriate for your membership?

At Mercer, we use data from our own assessments such as DC MOT and RITE (Responsible Investment Total Evaluation) as well as authoritative external sources to generate insights and recommend actions that help you and your members.

We want this to be an easy read so we’ve kept it brief. Please get in touch if you would like to discuss any of our ideas or findings in more detail.

Govern or consolidate — the big question for many

  • 45% of governance committees/trustee boards meet less than every three months.
  • 9% of governance committees/trustee boards meet only once a year and 13% have no governance committee.
  • 27% of employers remain with own trust DC pension schemes while 24% are with a DC master trust.

Inflation hits home — and persists

  • UK consumer price inflation (CPI) peaked at 11.1% in October 2022 but the annual rate stayed above 10% until April 2023 — and in October 2023 CPI was 4.6%.
  • Inflation pushed up the cost of a moderate retirement for a couple outside London by 11% to £34,000 in a year, according to the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards.
  • The cost of an equivalent pension for a minimum lifestyle jumped 19% to £19,900.
  • Just 33% of employers have asked their staff in the last three years whether they understand or value their benefits.
  • Only 20% of employers have reviewed their benefits in the last 12 months to ensure they are competitive.

Member outcomes — keep your eyes on the prize

  • 77% of pension scheme savers don’t know how much money they will need in retirement and 51% believe the minimum automatic enrolment rate is enough.
  • 76% of DC schemes don’t model member outcomes to show what kind of retirement they can expect.
  • 54% of employers don’t provide any retirement planning courses for employees.
  • 68% of employers haven’t reviewed their contribution design in the past three years.

Sustainability — as important as ever

  • 81% of employers have corporate environmental policies yet only 45% of employers believe their DC pension scheme’s investments align with those policies.
  • 30% of pension schemes include sustainable/low carbon assets in their portfolio.
  • 75% of trustee/governance committees don’t fully represent the organisation’s workforce and 31% have given no thought to representation.
  • 36% of schemes have a stewardship policy to challenge managers on voting decisions
  • 58% of trustee/governance committees don’t meet the 40% standard set for representation of women on boards of FTSE 350 companies.

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