How to get value for money from your workplace pension scheme How to get value for money from your workplace pension scheme

How to get value for money from your workplace pension scheme
07 Jun 2018

It can be challenging for employers to ensure their company pension scheme offers not only the best value for money but also the best outcome for its members.

The problem is though that pension funds vary in design and construction, investment risk and volatility, asset allocation strategy, return benchmarks, management and, critically, performance.

To make matters worse, there is no standard approach to measuring the performance of defined contribution default funds. Providers use a variety of comparators ranging from peer group sectors and composite benchmarks to cash or inflation indices, which are based on their own particular objectives and asset allocation.

This situation suggests that much scrutiny is required to prevent employers from unwittingly putting their employee pension pots in jeopardy. But how can they be certain they have selected the best funds on offer?

Firstly, having a solid governance structure in place can help to mitigate risks, avoid costly litigation and boost efficiency. In fact, it is crucial to catch mistakes early and ensure your pension plan is delivering the best possible value.

Good governance means regular governance meetings to ensure your scheme is being well run - something that all businesses should do as a matter of course. These meetings also provide the opportunity to explore different scenarios and ask fundamental questions. These include:

  • What outcomes are we after?
  • Are these outcomes being achieved?
  • What are the costs and risks involved?
  • If our pension is offered as the default, how does it compare to offerings from other providers?

But it is not just the price that counts. Quality is equally as important. Employers must ensure their pension scheme is fit for purpose and delivers the required outcomes for its members. As for defining what good looks like, here are three tips to help you get a handle on the issue:

  1. Check what charges are attached to your scheme

When it comes to pensions, charges are the most obvious variable. Members of defined contribution pension plans are usually subject to an annual charge that is taken from the fund by their pension provider.

But other costs are also associated with workplace pensions, which can be harder to unearth. For instance, some providers charge fees for members who want to transfer their funds to another pension plan. Others charge additional fees or penalties should a member decide to take early retirement.

So test the water, benchmark your scheme against others and be sure to challenge your provider about any charges they deduct. It might be possible to improve the fees situation or, if not, at least find out what would need to change for them to be reduced.

  1. Be clear about what you are getting for your money

If you have undertaken the steps outlined above, it should be easier to understand what you are spending and what you are receiving in return. If it is not clear, ask your provider why not. It could be that the amount you spend does not need to change, but the services you receive could be altered to better suit the needs of your scheme.

  1. Educate employees

Ensuring that employees understand the benefits provided by your pension plan will not only help them make the most of them but also understand how much you are investing in them as individuals.

If you wish to take things a step further though, you could explore whether to offer financial education to help your staff better understand their financial options. The rationale here is that, if they feel their future is more secure, they are likely to be more focused, happy, healthy and productive.

Conclusion

Remember that obtaining value for money is about both cost and quality. Running an audit of services will help you understand how effectively you are complying with the complex regulations covering workplace pension arrangements. By benchmarking costs, you will be better able to understand if fee levels are competitive.

But it may also be useful to explore hidden costs and establish just how much management time you are spending on trouble-shooting. Either way, failing to check out these issues means you will simply never know.

 Steve Butler 

Steve Butler is the chief executive of workplace pensions provider, Punter Southall Aspire. Over the course of a 25-year career, he has led a number of start-ups and change management projects, which include most recently the expansion of Punter Southall Investment Consulting. PS Aspire has just released a new ebook entitled ‘The Ultimate Guide to Good Governance'.

 

 

It can be challenging for employers to ensure their company pension scheme offers not only the best value for money but also the best outcome for its members.

The problem is though that pension funds vary in design and construction, investment risk and volatility, asset allocation strategy, return benchmarks, management and, critically, performance.

To make matters worse, there is no standard approach to measuring the performance of defined contribution default funds. Providers use a variety of comparators ranging from peer group sectors and composite benchmarks to cash or inflation indices, which are based on their own particular objectives and asset allocation.

This situation suggests that much scrutiny is required to prevent employers from unwittingly putting their employee pension pots in jeopardy. But how can they be certain they have selected the best funds on offer?

Firstly, having a solid governance structure in place can help to mitigate risks, avoid costly litigation and boost efficiency. In fact, it is crucial to catch mistakes early and ensure your pension plan is delivering the best possible value.

Good governance means regular governance meetings to ensure your scheme is being well run - something that all businesses should do as a matter of course. These meetings also provide the opportunity to explore different scenarios and ask fundamental questions. These include:

  • What outcomes are we after?
  • Are these outcomes being achieved?
  • What are the costs and risks involved?
  • If our pension is offered as the default, how does it compare to offerings from other providers?

But it is not just the price that counts. Quality is equally as important. Employers must ensure their pension scheme is fit for purpose and delivers the required outcomes for its members. As for defining what good looks like, here are three tips to help you get a handle on the issue:

  1. Check what charges are attached to your scheme

When it comes to pensions, charges are the most obvious variable. Members of defined contribution pension plans are usually subject to an annual charge that is taken from the fund by their pension provider.

But other costs are also associated with workplace pensions, which can be harder to unearth. For instance, some providers charge fees for members who want to transfer their funds to another pension plan. Others charge additional fees or penalties should a member decide to take early retirement.

So test the water, benchmark your scheme against others and be sure to challenge your provider about any charges they deduct. It might be possible to improve the fees situation or, if not, at least find out what would need to change for them to be reduced.

  1. Be clear about what you are getting for your money

If you have undertaken the steps outlined above, it should be easier to understand what you are spending and what you are receiving in return. If it is not clear, ask your provider why not. It could be that the amount you spend does not need to change, but the services you receive could be altered to better suit the needs of your scheme.

  1. Educate employees

Ensuring that employees understand the benefits provided by your pension plan will not only help them make the most of them but also understand how much you are investing in them as individuals.

If you wish to take things a step further though, you could explore whether to offer financial education to help your staff better understand their financial options. The rationale here is that, if they feel their future is more secure, they are likely to be more focused, happy, healthy and productive.

Conclusion

Remember that obtaining value for money is about both cost and quality. Running an audit of services will help you understand how effectively you are complying with the complex regulations covering workplace pension arrangements. By benchmarking costs, you will be better able to understand if fee levels are competitive.

But it may also be useful to explore hidden costs and establish just how much management time you are spending on trouble-shooting. Either way, failing to check out these issues means you will simply never know.

 Steve Butler 

Steve Butler is the chief executive of workplace pensions provider, Punter Southall Aspire. Over the course of a 25-year career, he has led a number of start-ups and change management projects, which include most recently the expansion of Punter Southall Investment Consulting. PS Aspire has just released a new ebook entitled ‘The Ultimate Guide to Good Governance'.