Since automatic enrolment was introduced in 2012, pension scheme participation has increased from 49% of employees in 2013 to 75% of employees in 2020.
While this is a very positive development for employees of companies with an auto enrolment pension scheme, there is a concern that employers feel that by having set up a suitable qualifying pension scheme they now feel they have fulfilled their pension duties and are now in ‘auto pilot’.
In reality, there are many ongoing issues with workplace pensions that employers must consider to ensure that their pension scheme continues to meet the six principles of governance set by The Pensions Regulator.
Are you with the right provider?
Choosing the most suitable provider is crucial to the performance and administration of your pension scheme. While the provider chosen when the pension scheme was originally set up was deemed suitable then, it may not be the best provider for you at present.
Some providers may not be meeting expectations in terms of:
- Choice/performance of funds
- Member engagement tools
If this is the case, now may be a good time to conduct a review of the pensions market to find a provider more suited to what you require.
Are your employees contributing enough?
The statutory minimum contributions have increased twice since auto enrolment was introduced, and members are now contributing significantly more to their pension pots than at the beginning of auto enrolment. However, for many members contributing the statutory minimum amount may still not be sufficient to ensure that their pension funds provide the income they require for a comfortable retirement.
A recent study from the Pensions and Lifetime Savings Association (PLSA) suggested that contributing the current statutory minimums would only provide the minimum amount needed for retirement, and that members should increase their total contributions to at least 12% in order to have a more comfortable retirement.
Ultimately, a workforce that can’t afford to retire presents employers with some challenges around succession planning and managing an ageing workforce. Better pension engagement from your employees will help you plan ahead to continue to grow and adapt your business.
Have you developed an employee engagement strategy?
Employees that are fully engaged with their pension funds tend to have much better outcomes at retirement. Providers are only obliged to provide members with a statement once a year, so employers should consider what they can do to create more interest among their workforce in relation to pensions. A more engaged workforce can make better decisions in relation to their financial wellbeing, and this can only be a good thing for employers.
An employer that shows that they care about the financial wellbeing of their workforce will find that this will improve the overall wellbeing of their staff and this will be invaluable in retaining staff and attracting new recruits.
Also, it is important to encourage younger members to engage with their pension. Older members are much more likely to engage with their pension but it is just as important for younger members to engage as if they get into the habit of paying regular contributions in their early years it reduces the likelihood of having to pay a much larger contribution in their later years to ensure that they can enjoy their retirement.
The availability of apps among providers is increasing and can help engage members when used as part of a strategy that uses a holistic approach to encourage members to look at all their pensions and savings to determine if they are on track for their retirement goals. The use of group presentations and one-to-one guidance meetings can be extremely beneficial for this purpose.
Are your investment funds right for you?
Pension providers will have a default fund that members are automatically placed into at enrolment and these are medium risk funds that will suit the risk appetite of most members. However, if employers have members that want to choose funds with a different risk profile then it is important to have a pension provider with a suitable range of funds to meet their needs.
Since the introduction of auto enrolment, Environmental, Social and Governance (ESG) funds are more commonly available as many members of pension schemes want to ensure that providers are taking ESG factors into consideration when selecting funds to invest in. However, although all of the main UK pension providers now have a strong ESG focus in their default funds, they all have their own definition of what ESG means and how they ensure funds meet their criteria for classification as ESG funds. It is important that you fully understand how your current provider is selecting ESG funds in order to keep your employees informed and help them to make the correct decisions on whether the funds meet their requirements.
Performance of the funds chosen by members is crucial. While most providers are quite close to each other in terms of how their funds perform there are some providers that consistently underperform in relation to their peers. If this is the case, a scheme audit may be of benefit as this will analyse the performance of your current provider and compare it to other providers to ensure that members have the best chance of achieving growth that matches their aims.