Employee benefits of the future
The way that individuals think about long term savings in the UK has changed dramatically over the past decade or so. From the pension tax reforms, the Lifetime ISA (LISA) and the rise of Peer-to-Peer (P2P) lending, the way the nation is saving and our attitude towards our financial future has changed. This has, understandably, caused confusion for employers –how can they help their employees secure a comfortable financial future, where should they focus their attention when it comes to pension schemes and how should they be communicating these complex changes in a way that workers really understand and engage with and which means that employers get the credit?
Add to this relentless legislative change and the rising costs of running a pension scheme and it is unsurprising that we are seeing a solid shift towards outsourcing pensions to master trust. This market is expected to have £554bn of defined contribution assets under management in the UK by 2030 – it’s set to be a significant player in defined contribution pensions.
Results from the Willis Towers Watson Finance Director Pension Survey 2017, have allowed us to understand more about this shift. The survey, which was run in 2016, gained responses from over 100 senior finance professionals, giving an insight to their future plans and expectations when it comes to pensions. More than half feel that the value they get from DC is average at best, and only 58% find the amount of business time spent on DC to be within a manageable range. Unsurprisingly, an additional research project we conducted found that the majority would be reviewing their DC plan within the next five years.
We asked: what would an ideal future benefits package look like? The most popular prediction was for more guidance and advice using technology (43%), followed by a wider choice of alternatives to pension saving (40%). In addition, respondents also cited becoming less pension focused (31%) and offering more helpline/face to face guidance and advice (20%).
Meeting these aspirations points to an outsourced pension model utilising the help and technology of specialists. The advantages of this model are clear. In our experience, the biggest issues around DC schemes are governance, engagement and cost. By outsourcing your arrangement to a master trust provider, you can eliminate a significant chunk of these issues and entrust them to the people who do this full-time.
A recent report from The Pensions Regulator found that when compared to other pension schemes, in a number of areas, master trusts came out on top with regards to governance and compliance. In fact, half of master trusts confirmed they met at least 75% of the standards, compared to 25% of large, 31% of medium and 5% of small DC schemes. Outsourcing gives employers immediate and long-lasting comfort that their Scheme governance is taken care of.
The master trust model is built with tomorrow’s technology in mind – giving members the ability to transact from the device of their choice irrelevant of their location. This type of “always-on” pension scheme gives members much more involvement on a day to day basis when it comes to how much they have saved and when they might be able to retire. This is supported by interactive, personalised tools to engage the member with their pension benefit, whilst gamification techniques keep them coming back.
The cost of running a pension scheme is growing, yet as an employee benefit, it is perceived as less and less important by employees. Moving to a master trust could see the corporate spend on their DC pension benefit significantly reduced or even eliminated, whilst the resulting increased engagement should see employees value their pension benefit more.
For many employees, long term saving is about balancing their finances to deal with debt, housing and saving for retirement, amongst other things. It is inevitable that the pension industry will have to change in response. A single platform, perhaps where a master trust is just one component could be the response that is the winner.