Data crunch: Despite almost half of defined contribution schemes now stating their main aim is to deliver adequate retirement income for members, 63 per cent do not know what is the expected outcome for a typical member at retirement, according to new research.
Aon’s 2022 DC pension scheme and financial wellbeing survey, which polled 109 DC schemes that have more than 500,000 members and £35bn in assets, showed that almost half (48 per cent) were considering changing structures in order to secure better outcomes for members, as well as to reduce governance costs.
The focus on better member outcomes — at 46 per cent in 2022, up from 17 per cent two years ago — comes at the expense of competitor benchmarking. In 2020, 44 per cent of respondents reported that this was leading their approach to DC, a figure that has now fallen to 28 per cent.
Although 86 per cent reported that offering good value for members was a major focus, and 75 per cent said better member outcomes was a priority, just a little more than a third (36 per cent) set increasing employee contributions as a target.
Steve Leigh, associate partner at Aon, said: “Generally, while it’s great to see an increase in schemes focusing on outcomes, more can be done to drive positive impact for individuals. For example, the level of contributions made and returns generated after charges are key drivers of better outcomes for members in retirement.
“However, only 36 percent of respondents have an objective to increase member contribution levels and just 28 percent have specific targets for investment returns.”
He suggested that more could be done “to understand and track changes in how much typical scheme members will get in retirement. It is a blind spot for many schemes, with 66 percent of them not knowing the projected financial outcome for a typical member”.
Additionally, only a third of schemes assess changes in whether individuals are on track to achieve their retirement goals, he said.
“There are a few quite straightforward ways to address this. While 93 per cent of schemes monitor the investment performance of individual funds against their benchmark, it would be a relatively easy step to monitor the overall performance of default options against long-term targets. But only 15 per cent of schemes currently do this.”
In the foreword to the report, Aon’s head of DC consulting, Benjamin Roe, stated that one trend he noted in this year's research "is the greater emphasis placed on pension outcomes. More respondents than ever selected providing a sufficient pot for members to retire with as their main driver in running their schemes".
“I also saw a growing recognition that monitoring and influencing outcomes is as important, if not more so, than measuring inputs across areas such as contribution take-up, communications and investment performance.
“This is a really positive direction for DC pensions, as the management of schemes evolves to consider what members will receive in retirement," he added.
Regulation breeds frustration
Aon’s survey found growing dissatisfaction with the scope and burden of regulations. Almost a third (32 per cent) reported that they now spend too much time on this area, double the number reported in the 2020 survey.
2022 will see the Pensions Regulator’s new single code of practice released, as well as changes to illiquid investments and charge caps, dashboard developments, and further work on environmental, social and governance standards, all of which are expected to add significantly to the regulatory and governance burden schemes must shoulder.
Aon suggested that this could be providing significant impetus for schemes to change their structures, while schemes themselves are broadly dissatisfied (61 per cent) with the amount of time they spend on member communications.
Leigh said: “Alongside reviewing the suitability of their governance structures, schemes have sought to enhance levels of engagement with pension savers by providing more targeted communications. Among our respondents, 38 per cent currently issue some form of targeted communication and a further 44 per cent are planning to do so in the next two years.
“However, it is also important to use appropriate measures of success. We found 80 percent indicated that their scheme has some form of proxy engagement measure in place, but there are limitations to this. Proxy measures track website and tool usage but not the extent to which members have taken meaningful action to achieve their desired outcomes.”
