If employers spent as much time concerned with their DC provision, as they did their DB arrangements, we would have a population more turned on by saving for retirement. Organisations spend a disproportionate amount of time governing their DB schemes, rather than promoting their DC offering – this is despite the vast majority of their staff accruing money purchase benefits.
DB provision is expensive, and organisations are wrestling the substantial deficits sitting on their balance sheets, which takes considerable time and resource – I get that. Although, to neglect DC provision is ill-advised, and poses significant risk to the employer.
Organisations have a legal obligation to contribute to their staff pension pot and, aside from pay, pensions are cited as the benefit employees appreciate the most – so, it seems odd not to promote DC provision. Getting your pension offering right can have a positive impact on recruitment and retention – not embracing pension provision can have the opposite effect.
It is important that employees are engaged to help them fully understand and appreciate their retirement benefits. Now the default retirement age has been abolished, it is imperative that employees are saving enough for retirement. If staff cannot afford to retire then your workforce is likely to be more expensive, as they will work for longer. Effective employee engagement will harness organic attrition, which is likely to have a positive impact on the organisation’s wage bill.
Moreover, employees will certainly hold their organisation accountable should their investment inadequately perform. Employers are responsible for selecting an appropriate default investment fund for their DC scheme – if this underperforms, and employees get less back than what they put in, there will be questions to the employer about how the default fund is being governed. As per legislation, all employers must inaugurate an Independent Governance Committee (IGC) from April 2015 – this will undoubtedly nudge (more like push) employers into governing their DC schemes – this should be embraced as a worthwhile exercise, not a chore.
This short blog has highlighted a select number of risks when neglecting DC provision, but there are also many more to consider. Defined contribution provision can be a minefield area for organisations, with complex legal requirements and significant cost considerations. However, employers must not bury their heads in the sand and disregard DC arrangements. There has been a clear shift from DB to DC schemes over the last 10 years – the Government fully recognise this trend, and have responded by increasing employer accountability. Don’t get caught out – it’s all about DC.
Gareth Hopkins is Director at GJH Pensions. To keep up to date with all the latest GJH Pensions news you can subscribe to our newsletter here or follow us via twitter @GJHPensions. GJH Pensions are an independent consultancy offering practical solutions to all things pensions. Our industry expertise, and personal approach, means we can truly understand the bespoke requirements for each client. Contact GJH Pensions today for a free consultation on 07446 148 537 or email firstname.lastname@example.org.