If you read nothing else, read this …
Look to see if the provider offers a good range of funds and has procedures in place to regularly review them.
Ensure fund managers are reputable and committed to the market.
Ask what support the provider can offer in terms of communication and education.
Article in full
In recent years, workplace pensions have been racked with headaches for both employers and employees. So just what questions should employers be quizzing their pensions provider with in order to ensure they get the best investment deals possible for staff?
Philip Thitchener, investment partnerships manager at provider Friends Provident, suggests employers need to look into the governance procedures their provider has in place for reviewing the funds and fund links available to employees. While a provider might have a fantastic fund choice today, employers need to know it is going to be continually updated. "A few years ago, there were very different funds that were whetting the appetite of investors and you can get some very trendy things that leave investors languishing. So it’s important for employers and employees to know there is a regular review of products on the platform, how it’s done and, where advice is given on those issues, who gives that advice," he explains.
Making sure employees have not only a range of funds available to them to meet differing needs, but varying investment styles on offer as well, is also important. Similarly, there needs to be a range of funds that can be constructed so members can have a suitable default fund. Regardless of the type of pension scheme they offer, employers need to know whether staff are investing directly in a provider’s funds or whether that investment is done via a reinsurance agreement with a third party.
This is something that is often overlooked by employers. Julian Webb, executive director of UK defined contribution business development at Fidelity Investment, says: "I don’t think we need to be overly concerned as to whether the underlying fund is subject to a reinsurance agreement, but I think that as part of the due diligence, the employer needs to be aware of that." Out of market risk for employees switching between funds is another issue that is often overlooked. "If the provider is following a manual process, you can be out of the market for three, four, or five days, perhaps even longer and that can have quite a big impact on the ultimate return on the member’s fund," he adds.
So ensuring switches can be done directly and on a daily basis is important. Other factors for employers to consider are the ease of access to information and choosing funds that are competitively priced – with an emphasis on quality, rather than the cheapest option. James Jones-Tinsley, head of pensions at Bates Investment Services, recommends investigating any possible additional charges. While a provider may have a base annual management charge, there could be extra charges to access some fund links and so this is worth checking out in advance. Making sure there is flexibility in the lifestyling element of schemes – where investments are moved from equities into fixed interest or cash overtime – so that risk can be reduced to variable levels to suit employees as they approach retirement is also an important consideration for employers.
Philip Smith, principal at Mellon Human Resources & Investor Solutions, however, believes employers should question fundamental issues such as the provider’s financial strength and commitment to the UK market as well as looking at whether it has a solid investment function behind it and that the provider itself has longevity.