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Choose a plan that lets you focus on your business
There are many questions to consider when thinking about your DC scheme ; Who is doing the administration ? Who is doing the governance ? How effective are the communications ? And how well are members supported at retirement ?
But as the DC landscape becomes ever more complex , our experience is that more and more employers want to focus on their own core business , and outsource responsibility for pensions to providers with the necessary expertise .
Administration requires a lot of attention , as members notice quickly if things are going wrong . Choosing a provider solely on price , without checking how well it has historically administered pensions , is a big risk .
What governance structure is best ? While there are a lot of well-run individual pension schemes , these come at a cost and are increasingly burdened by regulation , resulting in the need to pay for legal and investment advisers .
At the same time , the Pensions Regulator wants to see fewer , better-run pension schemes and so we ’ ve seen a trend of employers choosing to move away from running their own plan into participating in a Master Trust .
Communicate well The best measure of a return on investment in pensions for an employer is how much employees understand and value their pension scheme . This requires effective and increasingly sophisticated communications , created by experienced and knowledgeable specialists .
The employer can play a huge role here , as research shows individuals trust their employer more than they trust financial institutions . Autoenrolment means that people do now join the pension plan , so employers ’ communications must focus on engaging members to contribute enough on a regular basis and on the complex decisions faced at retirement .
All of this comes at a significant cost , which only really makes sense if you have sufficient scale and can spread these costs across many schemes . Outsourcing communication and engagement to a provider with the scale and resources to manage and invest in future technology , tools and techniques has become very attractive to businesses of all sizes .
There is also a need for advice , both at retirement and during retirement , as the decisions people must make are now much more complex . Although high net-worth individuals may have their own advisers , we now have a mass market that will need advice but won ’ t find it easy to access , and won ’ t want to pay much for it . Finding a way to provide this advice will be another key responsibility for schemes in the future .
Growth or exit ? In DC , once the member has left employment , employers expect their liability to end and don ’ t want to continue their fiduciary obligations into retirement .
So it makes sound business sense to outsource all of these post-retirement obligations and administration duties to a provider and a pension solution , such as a Master Trust , with the financial strength to deliver low-cost advice and full pension freedoms .
With many of the UKSPA ’ s businesses owned by private equity firms , owners and management should be considering whether their pension plans will support their future strategy for the business .
Purchasers will undertake pensions due diligence , so being able to offer pension plans that have high levels of governance and security of members ’ savings , no residual liabilities and no increases in member charges will help to enable a clean exit for owners .
A pension plan that can be easily harmonised with the new owner ’ s arrangements will be doubly welcome , and may indeed offer a better solution for the new owner .
Where the strategy is to continue growing the business , again the pension plan must offer flexibility to adapt to higher memberships , more diverse demographics and more demanding individuals .
Whilst a low cost plan might initially have met a start-up ’ s needs , the speed at which the market is changing can mean that it no longer delivers sufficient flexibility for either the business or its employees .
Delivering pensions through a Master Trust gives management and private equity owners flexibility to either continue growing their business or to exit by sale , without having to worry about pensions .
Upon exit , there is no trust left to wind up and deal with , members don ’ t suffer from increased charges after leaving and their retirement savings continue to be governed by professional trustees .
Equally , if the business continues to grow , management can be focused on that objective , rather than on running or governing a pension plan , but with comfort that they are accessing expertise in governance , investment , administration and member communications .
Above all , ensure sustainability
Choosing a DC plan that adapts to market changes , to regulation and to business needs is crucially important . It means choosing a pension provider that is committed to the UK market for the long term , and one that is able to partner with businesses throughout their cycles .
At L & G we deliver a variety of DC pension solutions to all sectors of UK plc and to all size of business . ■
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Market Intelligence 2016 : UK Defined Contribution Looking beyond the passive approach – Spence Johnson
C o m m u n i cat e w e l l
C h o o s e a p l a n t h at
lets you focus on
your business
There are many questions to consider
when thinking about your DC scheme;
Who is doing the administration? Who is
doing the governance? How effective are
the communications? And how well are
members supported at retirement?
But as the DC landscape becomes ever
more complex, our experience is that
more and more employers want to focus
on their own core business, and outsource
responsibility for pensions to providers
with the necessary expertise.
Administration requires a lot of
attention, as members notice quickly
if things are going wrong. Choosing a
provider solely on price, without checking
how well it has historically administered
pensions, is a big risk.
What governance structure is
best? While there are a lot of well-run
individual pension schemes, these come
at a cost and are increasingly burdened by
regulation, resulting in the need to pay for
legal and investment advisers.
At the same time, the Pensions
Regulator wants to see fewer, better-run
pension schemes and so we’ve seen a
trend of employers choosing to move
away from running their own plan into
participating in a Master Trust.
The best measure of a return on
investment in pensions for an employer
is how much employees understand and
value their pension scheme. This requires
effective and increasingly sophisticated
communications, created by experienced
and knowledgeable specialists.
The employer can play a huge role
here, as research shows individuals
trust their employer more than they
trust financial institutions. Auto-
enrolment means that people do now
join the pension plan, so employers’
communications must focus on engaging
members to contribute enough on
a regular basis and on the complex
decisions faced at retirement.
All of this comes at a significant cost,
which only really makes sense if you have
sufficient scale and can spread these
costs across many schemes. Outsourcing
communication and engagement to a
provider with the scale and resources to
manage and invest in future technology,
tools and techniques has become very
attractive to businesses of all sizes.
There is also a need for advice, both
at retirement and during retirement, as
the decisions people must make are now
much more complex. Although high
net-worth individuals may have their own
advisers, we now have a mass market that
will need advice but won’t find it easy to
access, and won’t want to pay much for it.
Finding a way to provide this advice will
be another key responsibility for schemes
in the future.
Growth or exit?
In DC, once the member has left
employment, employers expect their
liability to end and don’t want to continue
their fiduciary obligations into retirement.
So it makes sound business sense to
outsource all of these post-retirement
obligations and administration duties to a
provider and a pension solution, such as a
Master Trust, with the financial strength
to deliver low-cost advice and full pension
freedoms.
With many of the UKSPA’s businesses
owned by private equity firms, owners
and management should be considering
whether their pension plans will support
their future strategy for the business.
Purchasers will undertake pensions due
diligence, so being able to offer pension
plans that have high levels of governance
and security of members’ savings, no
residual liabilities and no increases in
member charges will help to enable a
clean exit for owners.
A pension plan that can be easily
harmonised with the new owner’s
arrangements will be doubly welcome, and
may indeed offer a better solution for the
new owner.
Where the strategy is to continue
growing the business, again the pension
plan must offer flexibility to adapt to
higher memberships, more diverse
demographics and more demanding
individuals.
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