Aerospace and defence manufacturer Finmeccanica UK has a typically long-serving workforce, so its pension schemes are highly valued.
In 2007, it introduced a new trust-based defined contribution (DC) scheme, FuturePlanner, for its UK staff who were joining a pension scheme for the first time.
It also runs two defined benefit (DB) schemes, which are now closed to new members but open to future accrual, and wanted to bring in a DC plan that was equivalent to the DB schemes in terms of how well the investment funds were looked after.
As winner of the ‘Best DC pension default investment’ category at the Employee Benefits Awards 2013, the DC scheme was recognised for its default investment strategy. The strategy was introduced to ensure it was not considered a ‘poor relation’ to its DB sister schemes.
The FuturePlanner scheme takes a fiduciary management approach, with an investment consultant ensuring it meets its objectives. Finmeccanica UK uses P-Solve Asset Solutions for this purpose and to ensure members are not ‘cast adrift’ in the world of investment.
The organisation recognised that not every employee is an expert in investments, so wanted to offer a default investment strategy that staff could rely on to provide a level of investment sophistication.
Mike Nixon, head of pensions at Finmeccanica UK, says: “The trustees take responsibility for moving money on behalf of members, so we’ve appointed a fiduciary manager to provide us with a level of investment skill that we think is broadly equivalent to what the traditional defined benefit schemes receive.”
Finmeccanica chose a trust structure and has auto-enrolled staff into the FuturePlanner scheme from the time it was first implemented. “When we set it up, we didn’t know [government-led] auto-enrolment was coming, so we decided to encourage participation by auto-enrolling people through their contract of employment when they first joined us,” says Nixon. “We do encourage people to pay more than the [minimum] auto-enrolment level.”
About 90% of members use the default investment fund, which comprises four blend funds offering different risk objectives. Each fund has an inflation-plus target.
“The strategy is both diversified across a range of things, and also rotates through different asset classes at different points in time,” says Nixon. “The target is a real one in terms of making money grow instead of following an index.”
Each fund, developed with P-Solve, has been set short- and long-term objectives, along with asset allocation control ranges and volatility limits. The blend funds are used for a lifestyling process, which switches employees from higher-risk to lower-risk funds in two phases: from 30 years and 15 years before their target retirement age.
Finmeccanica changed its default retirement date to the state pension age (SPA) and this, along with moving away from investment risk in the final three years before retirement, means members have a long growth phase for their investments, which will enhance their pension income.
The performance and objectives of the strategy are measured through a quarterly report that is reviewed at trustee meetings. This assesses the short-term objective: a measure of what investments markets have done in a typical benchmark of diversified assets; and the long-term objective to beat inflation by margins of 5%, 4% and 3% for the different risk profiles.
The organisation operates a matching contribution structure of two-for-one on employees’ contributions, up to a maximum of 5% of salary. Staff have the option of making additional voluntary contributions, which are not matched.
Participation rates in FuturePlanner are high, due in part to the traditional manufacturing nature of the business and staff expectation of a typical pension provision. As many as 95% of employees in the group’s AgustaWestland business, and 91% of those in Selex ES belong to the scheme. “Participation is very high, but you would expect that because pensions are the deal people expect when they come to an employer like this,” says Nixon.
Finmeccanica uses a variety of communication methods to ensure staff are fully informed on pension matters. It sends out benefits statements and newsletters, and operates a dedicated website for the scheme.
“There’s quite an extensive website with two layers,” says Nixon. “There is the generic website we can use for news updates and to send alerts from, and from there [employees] can get into an individual website where they can look at their own account. It’s a full range of communication tools. Given the style [of the scheme], where we encourage people to default, a lack of engagement is not a criticism; people are trusting the programme to work for them.”
Nixon says the DC scheme and default investment strategy work well for the organisation and its employees. “When someone comes in, they expect a good salary and a good pension that will support them throughout, potentially, quite a long career,” he says. “We are trying to offer something to fit into the culture and their expectations while they’re here.”
Career history: Mike Nixon, head of pensions, Finmeccanica UK
Mike Nixon, head of pensions, has worked for Finmeccanica UK for about nine years. He has led a full career in reward, having started in the insurance sector working on pension schemes, and then moving into HR roles. Most of his career has been spent in managing occupational pension schemes.
“We’re pretty proud of FuturePlanner,” he says. “It’s important to do these things well.”
Finmeccanica at a glance
Finmeccanica UK is part of the Finmeccanica Group, which operates in the aerospace, defence and security markets. It supplies helicopters, aircraft, aeronautics and defence systems. In the UK, it has two main operations: AgustaWestland, a helicopter manufacturing business, and Selex ES, which operates in avionics and advanced manufacturing.
In the UK, Finmeccanica employees 8,500 people and reported annual sales in 2012 of more than £2 billion. Globally, the Finmeccanica Group employs about 70,000 people across five continents.