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09 Dec 2015

How to decide: deal direct or use a pension consultant?

Thanks to increased pension costs, due to automatic enrolment and the ending of commission, some employers may be considering whether to continue using the services of a pension consultant or to dispense with these and deal direct with their pension provider.

So how should they decide whether it's the right move or not?

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Pension providers often offer employee communication support, member helplines, a relationship manager, online pension tools and technical support, with these services paid for out of the management charges levied on members

And, since April 2015, all providers of work place schemes (which include most contract based schemes) have been required to set up their own Independent Governance Committee (IGC) to represent the members of their schemes.

With an independent chair and at least half of the committee independent of the provider, IGCs will have a statutory duty to act in the best interests of members (active and deferred). They are tasked, in particular with assessing whether members receive value for money, and will have the ability to raise concerns with the provider, or ultimately, and in extreme cases, the Financial Conduct Authority (FCA).

If an employer is not interested in tailored support and in reviewing its own scheme, these services might be enough.

However, it’s possible that the scheme is not being run as efficiently as it could be and the governance provided by IGCs will, at best, be high level, not taking into account the specifics of the scheme. Each IGC will be considering member outcomes across the provider’s whole book of workplace pension schemes and will not be focussing on the scheme of any particular employer. Ultimately, the employer may not be getting value for money from their pension spend, which could over time erode the explicit cost savings of not retaining a consultant.

Issues affecting members in an individual employer scheme – or the continued suitability of the scheme itself – should be considered at the individual employer level, with the obvious place to do this being through an employer’s voluntary governance committee run with the assistance of a pension consultant.

What are the benefits of retaining a pension consultant?

An independent pension consultant can access and research the whole pension market, provide advice and recommend the right solution based on client needs. This approach, when used to supplement the provider’s resources, can enhance the pension scheme, delivering efficiencies and better outcomes for members.

An independent pension consultant should:

  • Provide advice and recommendations on how to select and run a pension
  • Review the whole provider market and scheme types, to find the right provider and scheme
  • Negotiate terms and services on their clients’ behalf, using their influence to make a difference
  • Deliver communications that are bespoke to the client
  • Monitor investment performance and recommend funds, which are appropriate to the employee demographic
  • Provide access to technical experts able to explain how regulatory changes might affect the employer or the scheme and assist in making any changes required
  • Provide regular ongoing governance, which is scheme specific rather than at a product level.

It is the area of governance where pension consultants potentially can deliver most value. A provider’s IGC will necessarily take a wider view of all the schemes on the platform, whereas a pension consultant will focus on the needs of individual schemes.

Scheme specific reviews should look at the provider’s administration and investment performance, and continually benchmark the charges and contribution levels ensuring the scheme meets the needs of the client and its employees. It should also check that the scheme is meeting designated quality features, in line with the Pensions Regulator’s guidance. This manages both reputational and financial risk to the employer.

As with any professional adviser, the expertise and experience that a pension consultant can provide has a cost. However, the services mentioned above can be delivered alongside the provider’s services so that the consultant is adding value, whilst keeping costs down and helping the employer to deliver a scheme which is valued by its employees.

 This article was provided by Punter Southall.

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