An eventful decade
The decade draws to a close and we’re all ten years older than we were ten years ago, if my arithmetic is correct. I expect the usual end-of-year reviews coming up on TV will be augmented by end-of-decade retrospectives later this month. Somehow, I doubt that there will be one on the topic of workplace pensions but, if there were, there would be no shortage of material. A hell of a lot has happened in the tens, if that’s what this decade is called.
Since 2012 we’ve had the Retail Distribution Review (RDR), the rollout of auto- enrolment (AE), the imposition of a charge cap on workplace pension default funds, and the pension freedoms legislation.
It now seems that, in the late noughties, as far as defined contribution (DC) workplace pensions are concerned, everyone was coasting. Pension providers were complacently offering products that had scarcely changed for years. Advisers didn’t necessarily have to earn the commission they received from scheme members’ savings. Employers weren’t legally required to have a workplace pension; and, if they had one, its quality was often questionable. Employees tended to take what they were given (if they were given anything) and typically had no choice in how they accessed the retirement benefits they accrued, so they often felt detached from their socked-away money and indifferent to long-term planning.
We’ve all had to up our game in recent years. Providers are developing flexible, digitised products. Advisers’ remuneration depends on the services they actually supply. Employers must offer a workplace pension scheme to nearly all employees. And nearly all employees must join their workplace scheme. Employees usually see deductions from their salary going into their pension every month and they now have several ways of taking retirement income. Contribution structures and retirement options confer greater responsibility on employees — and they are entitled to help with understanding them.
Employers must run a workplace scheme that offers employees value for money and good member outcomes. These are abstractions that, according to the newly formed Money Advice Service and to us at Employee Benefits Collective (EBC), depend on contribution levels, investment choices and decisions made at retirement. Robust, thorough scheme governance is essential if good member outcomes are to be achieved.
We represent the framework that leads to and from successful governance thus:
Not so long ago the relationship would have looked like this —
— with the adviser filtering the flow of information between the employer and the provider, and the employee usually receiving a trickle of opaque information from the provider. This is no longer acceptable, and a four-way relationship based on transparent communication is far more efficient and, importantly, more equitable.
The employee is at the base of the diamond and doesn’t usually participate in discussions among the employer, adviser and provider about the scheme, but in fact he or she is the most important party of the four: the whole purpose of the arrangement is to maximise the benefit to employees.
Real governance involves the adviser presenting detailed reports to the employer at regular meetings. Reports are discussion documents that create an audit trail. They cover:
- scheme stats and MI
- regulatory compliance
- default fund performance
- investment choices
- retirement options
- scheme activity
- provider’s resources
- member engagement
- topical issues
Fixes and enhancements can then be recommended during and after meetings. There is invariably room for improvement.
Servicing your vehicle
Master trusts are governed by trustees. Group personal pensions (GPPs) are governed by Independent Governance Committees. But this is high-level, proposition-centred governance. It isn’t about individual schemes.
Installing a workplace pension scheme without conducting regular scheme-specific governance is, perhaps, like buying a new car based on the manufacturer’s specs and favourable reviews, and then driving it without getting it periodically serviced. A pension is a long-term savings vehicle; we at EBC are skilled, experienced mechanics.