Covid-19 forces half of DC schemes to review objectives

The figures come from a poll of attendees at Aon’s DC and Financial Wellbeing virtual conference, in which it was also found that, though 40 per cent of respondents said the need for short-term action had crowded out long-term considerations, one in four schemes were considering changes to the way they were run or administered.

Additionally, one in seven sponsoring employers are considering cost savings that are likely to impact their DC schemes.

Ben Roe, senior partner and head of DC consulting at Aon, said: “It’s clear that for some schemes the sole initial focus has been on the immediate challenges, in whatever way they have presented themselves. 

One of the things you’ve learned as a result of Covid-19 is that running a pension scheme isn’t essential to your business

David Bird, Cardano

“That’s no surprise — the combination of market volatility, resource constraints or administrators with differing levels of ability to adapt to new ways of working would exercise any scheme.

“It is key for schemes to ensure that their immediate crisis resilience plan response is effective in the short term, before also considering the longer-term impact,” he added.

Of the 20 per cent of schemes looking to make administrative changes, Mr Roe suggested they may have a variety of causes, such as “gaps in resources or inadequate systems back-up” that have been exacerbated by recent events. 

He anticipated this drive for change would probably accelerate the move towards “a more modern or outsourced approach”, whether that be in the form of master trusts or “shifting to a bundled administration or investment provider”.

Pandemic accelerates existing trends

David Bird, head of DC platform at Cardano, told Pensions Expert that the pandemic would not lead immediately to increased master trust uptake, but such an increase was likely to happen after some return to normalcy has been achieved.

“There’s maybe a little bit more urgency [as a result of Covid-19]. One of the things that happens when you’re in times like these is you start to think, as a business, about what it is you need to do to run the business and keep running the business. The pension scheme isn’t one of them, for most people,” he said.

While outsourcing pensions probably is not an immediate priority while people have businesses to save, Mr Bird said that “when you’ve got more time and resources” it’s something that many will consider.

“Because one of the things you’ve learned as a result of Covid-19 is that running a pension scheme isn’t essential to your business,” he explained. 

“[Master trusts] seem like they could do that for us and do it well, so why don’t I outsource the pension scheme like I outsource other things?”

SEI managing director Steve Charlton agreed, and pointed out that many single trust-based schemes are currently “trying to figure out how to rationalise the costs of running schemes during these challenging times”.

“As a result, we expect to see more pension schemes turn to outsourced solutions that can bring efficiencies of scale, and the most obvious of these is the master trust,” he said.

“At SEI for example, we’ve seen interest in our master trust increase steadily since March. I have no doubt there will be further DC clients looking to squeeze costs as the impact of Covid-19 continues to weigh on schemes.

“Our default funds in particular have proved immensely popular in recent months, as the in-built protections they offer against market volatility have resonated with those looking for a stronger comfort factor.”