Is your workplace pension fit for purpose?

By Ian Bird, Secondsight.

There’s no doubting that automatic enrolment, which came into force in 2012, has had a positive impact and has made far more people save for their future and prepare for their retirement.  As an employer, it is your responsibility to ensure that the workplace pension you are offering is the best option for your people. 

As an advocate of financial wellbeing and good member outcomes, it got me thinking about best practice, and areas of your pension you should regularly review to help ensure that your workplace pension continues to remain fit for purpose and achieves the best member outcomes.  As well as remaining cost-effective for you. 

Review your costs

Is your pension offering good value for money for you and your employees?  If you haven’t reviewed your pension scheme or provider for some time, you may be paying a higher annual management charge (AMC). Many pension providers have reduced their annual management costs in recent years, it may be worth exploring if your costs could be reduced.

Pension set-up and available funds

Have you reviewed your pension’s default fund? Many employees often remain in the default fund, so making sure this is still relevant for your people is really important. Of course, the default fund is chosen to meet the needs of the average scheme member, but areas you may wish to consider reviewing are:

• Is your default fund still designed for annuity purchase or is it preparing for pension freedoms?
• What is the default retirement age on the scheme? Remember state pension age is no longer 65!

If you don’t know the answers to these questions, then that could be an indication you are falling short of best practice and your scheme is in need of a review.

Additionally, as more people are becoming concerned about climate change, for many pension members the value of their investment may no longer just be about what money it can make them.  Many may also care about the positive impact their money can have.  Should you be considering an ESG (Environmental, social and governance) default fund for your pension?

Governance

Are you confident that your pension meets the relevant governance and legislative standards? It is important that you understand your responsibilities, a requirement of The Pensions Regulator (TPR). You’ll know that TPR requires you to make sure your workplace pension is monitored regularly and delivers value for money for your people.

So, just how often should you be reviewing your pension? Well, this depends on the scheme you are running and the amount of money under investment, but some basic governance should be performed every year. And, in terms of reviewing your pension set-up and provider, if your governance review doesn’t highlight any anomalies, I would suggest reviewing this information every three to five years.

Alongside this, I would also suggest regularly engaging your people with their pension, be that through regular emails or relevant content being shared or perhaps an annual pension presentation. If your employees believe their pension is competitive, well run and provides the options they need, they are likely to feel valued and engaged with you as an employer and this important employee benefit.