Reward and Trust Pensions asked employers about how they run their pension scheme, and if they would consider using a master trust. Helen Swire reviews the results of the survey
You don’t have to be a trustee or a pension manager to need to understand your company’s pension scheme and how it is run.
Reward’s survey, in association with Trust Pensions, showed that HR professionals are becoming more involved with their company scheme and also that pensions have been far from business-as-usual over the past few years.
Almost half (44%) of respondents to our survey were HR professionals who said that, although they had no direct involvement with their pension scheme, in their professional role they needed to have some dealings with it. A further 8% were scheme trustees.
Running and reviewing your scheme
One of the key jobs that the survey respondents – whether HR and benefits professionals, or governance board members and trustees – must consider is whether a review of their scheme provider is needed.
Auto-enrolment has now finished for all but the smallest companies, and the pensions industry is now dealing with the fall-out of the freedom of choice reforms, in place since 6 April.
So perhaps it is not a great surprise that nearly a third (28%) of respondents said that they have not reviewed their scheme provider this year – and have no intention of doing so for at least three years.
While nearly half (46.6%) said that they have reviewed their provider, either as a result of the new pension freedoms or as a because of auto-enrolment, 34.6% also said that the reason they were doing was just a question of routine.
Given the volume of recent legislative changes, many employers will have been loathe to add changing provider to their list of pensions-related tasks.
However, a fifth of survey respondents also identified the importance of a provider review in bringing down costs (22.6%) and reducing the governance burden (21.3%).
One in ten (12%) respondents also said that they would review their scheme provider in order to support the pension freedoms reforms more effectively – suggesting that a few employers have found that in the light of the changes their needs are not being catered for adequately.
The majority of employers seem relatively unperturbed by the challenges they face implementing the new pensions freedoms their employees can take advantage of from the age of 55.
Nearly half (46.6%) said they only expected the time spent on scheme governance and management to be increased ‘a little’ by the freedom of choice. Only 5.3% thought it would significantly add to scheme management time.
However, a further 21.3% of respondents said that it was too early to tell what the management time implications would be – suggesting that only a few months into the changes, the industry has not experienced the true extent of the impact of the reforms.
Although 65% of those surveyed said that pension freedom and choice would be one of their top three governance concerns, most only ranked this as third. Nearly three-quarters of respondents (71%) said Pension Wise, and the need for financial advice, would be one of their top three governance challenges – this is unsurprising, given the lack of information around Pension Wise given to employers.
Companies also harbour worries about the line between guidance and advice, but despite this, want to help their employees as far as possible.
An overwhelming 72% of survey respondents said that auto-enrolment was one of their biggest challenges in scheme governance.
However, given that 83% of respondents were from companies with more than 250 staff, it is likely that these challenges stem more from the ongoing elements of auto-enrolment – such as the new challenge of communicating to an entire workforce.
Both the charges cap and defined benefit (DB) to defined contribution (DC) transfers figure in the ‘top three’ biggest governance challenges for many employers. However, the number of respondents that listed these as major concerns (47% and 23% respectively) remains much lower than that of employers who cite auto-enrolment as one of their chief problems.
What kind of scheme?
To gain a better view of the challenges that employers are facing, it is also important to look at the scheme they are in, and ask if they understand all their options.
The survey focused on the different structures of DC scheme available – GPP/contract-based schemes, DC or DB trust-based schemes, and master trusts (a DC scheme run by a third party that is governed by an independent trustee board).
Only 10.6% of respondents use a master trust as their main pension scheme – that is, the scheme that the majority of their employees use. The same proportion still retains a DB scheme as their main scheme.
The majority (57.3%) have a contract-based scheme as their main pension scheme for employees.
Nearly half (46.6%) of those surveyed said that they had not considered using a master trust for their main pension scheme, but might do so in the future, while 2.6% are considering it as an option.
The independent governance offered by a master trust is a key selling point to employers: 41.3% of respondents cited the reduced governance burden as a key benefit, while 34.6% added that employers benefit from not needing an in-house trustee board.
The simplicity and low costs of having a master trust as employees’ main scheme were also key benefits to employers, cited by 30.6% and 24% respectively of those surveyed.
However, an emphatic 24% of respondents said they would never use a master trust for their main pension scheme.
A key issue for many is simply the fact that they do not fully understand what a master trust is – how it works, and the responsibilities of the employer when running a master trust for their staff.
Indeed, reasons cited for not using a master trust included the perceived cost, and the administrative and compliance burden with which employers assume they will face. And, for some respondents, they are simply happy with their current scheme arrangements.
An ideal world
When asked what one change they would make to their current pension arrangements, responses showed areas in which respondents felt employer, employee, provider and adviser alike could see room for improvement.
Several of those surveyed suggested that the employer could benefit from a scheme with increased contributions, reduced administration and better communications.
Employees would, of course, also profit from higher employer contributions – and would become more involved if better communications meant they understood more about their pension scheme.
One respondent also suggested that they would like to see their scheme give employees the flexibility to continue working while taking their pension.
Better service from providers and advisers was also demanded – from the former, better communications, more options for fund switching, and increased transparency around hidden charges. Meanwhile, advisers were asked to be more proactive in giving advice.
It is clear from the results of the survey, and particularly from the point of view of those HRDs for whom the pension scheme is not a main but nevertheless a key part of their role, that in the brave new pensions world employers really crave support from providers and advisers.