Education key as employers stretch to reach pension goals

Research from consultancy Towers Watson found 71 per cent of employers think they should provide services that will enable employees to retire, but just 22 per cent said their DC plan will give members a adequate retirement income.

It is difficult to establish a fixed set of objectives to ensure members achieve the pension saving they need, due to the individual circumstances that affect how this is defined, said Alan Morahan, principal at consultancy Punter Southall. 

“But what all employers could do is look at maximising the pension scheme in a number of different areas for the benefit of members,” said Morahan.

It is ultimately in the interests of employers that staff accrue a sufficient pension, he added, as this will enable companies to hire new talent.

“A lot of employers haven’t woken up to the fact that the pension scheme will be the tool that will enable them to get people out of the workplace,” he said.

Experts have pointed to the main drivers behind achieving better member outcomes, which include:

• Employer and employee contributions;

• Strong investment performance;

• Making the right at-retirement purchase;

• Effective governance;

• Value performance in respect of the charges paid.

Maximising member contributions

Lower contributions may be a reason behind the gap between employers’ pension aims versus the plan that is actually being delivered to members, said Ian McQuade, client director at consultancy Muse Advisory.

“The other part of it is that employers are not in a position to be able to up the contribution rates to the levels that are going to be required to achieve that outcome,” said McQuade.

Roger Mattingly, director at Pan Trustees, agreed. He said that while achieving a good investment performance and taking the appropriate level of risk are important, the onus is ultimately on members to make the correct level of contributions to the scheme to achieve the retirement income they need.

Members need better education to gain a more realistic picture of what income in retirement their contributions will earn them, he said.

“The only way you can actually make a difference is through understanding and learning,” said Mattingly.

However, he added that as more schemes engage with members via mobiles and other electronic devices, more member data could be captured and used to determine their retirement needs.

Contract-based schemes

It is more difficult for employers with contract-based DC plans to assess whether members will receive an adequate retirement income, advisers said.

Employers should discuss the default funds on offer with their provider and choose according to the profile of their workforce, said McQuade.

However, only 27 per cent of DC plans surveyed monitor what retirement incomes members can expect to receive.

Morahan said employers and trustees should start by educating staff in order to deliver a plan that will meet their needs.

“[Employees need] a better understanding of what the state might provide, what is a good pension, and then build from that,” said Morahan.