In this, our second Workplace Savings Quarterly from Employee Benefits magazine, we dig deeper into the issues HR and benefits managers need to consider about workplace savings. In particular, we explore the product that sucks up most savings from any workforce: the default investment fund in a defined contribution (DC) pension. As many as 80% of staff in a DC scheme find themselves using a default fund for their investments unless they select a specific strategy (which few do, an exception being L’Oreal staff).
For too many years, for too many employers using contract-based pensions (as opposed to a scheme looked after by a trustee board) such as a group personal pension or stakeholder scheme, the default investment fund into which most staff fall has been, at most, an afterthought.
Even good employers that have tried to increase pension contributions and educate staff about their pension plan have not always understood what investment strategies they are offering in the default fund. But now the emphasis is changing to incorporate a much closer scrutiny of exactly what the default fund is trying to achieve for staff when they eventually retire.
More benefits managers are starting to get an understanding of pension fund investment strategies and discovering the subject is not as complex as they expected (or certainly not at the level they need to understand it to provide good governance).
Fund managers are also focusing more on working directly with employers, albeit alongside consultants and advisers. They can see the future source of money for their investment funds will come directly from staff in contract-based schemes. In the past, money came to fund managers from defined benefit (DB) schemes, but that source is in terminal decline. The auto-enrolment reforms will also dramatically boost the number of employees in contract-based schemes using default funds.
Terms such as ‘absolute growth’, ‘diversified growth’ and ‘target date’ are entering the conversation of savvy benefits managers who know that even if they do the best job possible in selecting a scheme, communicating it and getting staff involved, it could all be for nothing if employees’ pension pots are poorly invested.
And a benefits manager who has not done his or her best to ensure a good investment outcome for staff has not done their job.
Editor, Employee Benefits