Five key tests for effective oversight of your pension scheme in 2024

Your organisation’s provision and spend on a pension scheme has always been significant and comes with both risk and responsibility

This year, we’re seeing government policy as well as industry regulators sharpening the focus for savers seeking better support in the UK workplace with their pensions and retirement plans.

Achieving good member outcomes and providing adequate member support into retirement are key priorities. Now is the time for companies to leverage this regulatory shift and seek more from UK pension providers.

Good pension oversight is critical to this. The most effective schemes will have clearly defined objectives, with strong oversight of the pension provider to ensure value is delivered to members.

Here are five questions to consider for effective oversight of your pension arrangement.

1. Are your members actively supported in achieving good outcomes in retirement?

More and more people are reaching retirement with limited DC benefits. This is an adequacy crisis waiting to happen in the UK. Our analysis estimates that even high earners, paying the 8% minimum total contribution rate under auto-enrolment are unlikely to achieve a moderate standard of living in retirement against the Pensions and Lifetime Savings Association’s (PLSA) retirement living standards.

If you want your members and employees to have great outcomes in retirement, you need somebody actively working to support and monitor this aim. Evaluating contribution design, behaviours and expected member outcomes is an important oversight activity to put in place. Good oversight involves recognising that employees need access to trustworthy guidance and advice.

2. Are you achieving measurable value from your pension spend?

You may have outsourced your provision to a contract based or a master trust provider, but you will still have to pay a lot of money into the pension arrangement through contributions. Your provider is facing increasing regulatory and political pressures to provide good solutions (investment, decumulation, guidance) which support good member outcomes. You need to ensure that your provider is meeting these requirements and offering good value compared to other competitors in the market.

Effective oversight means assessing current services as well as the declared plans of the provider to deliver strongly in the future. Our research and analysis suggest that a review of your pension arrangement by an oversight group could increase members’ pots at retirement by up to about 15%, either through achieving a reduction in charges for members, or enhancing the post-retirement solution.

3. Do you ensure your members are considered as a distinct group?

If you’ve outsourced your pension provision to a provider, many other employers may also use that same provider. Your provider’s solutions might not be tailored for your specific members. Having a pension oversight group to really focus in on your own membership will ensure that your unique members, their challenges and work environments are well considered. Member engagement, communication approach and at-retirement services are important examples requiring evaluation and alignment.

4. Are your corporate objectives for pension provision still being met?

So, you've outsourced your provision, but you still have objectives related to your employee strategy and broader wellbeing and reward packages. Are these integrated to ensure a consistent experience for new joiners, returners, those approaching retirement or others experiencing key life events? A pension oversight group can provide valuable judgement here, especially in today’s setting where financial wellbeing is such a central issue for UK employees.

Meaningful guidance and advice services in the workplace are considered essential by UK pension policymakers. A dedicated oversight group can enable these services, monitor their impact, and capture valuable member insights along the way.

5. Is there clear consistency with your declared corporate commitments and policies?

Your organisation may have spent a lot of time developing your corporate strategy, including setting ESG and DE&I policies. Such policies bring significant accountabilities to the executive team.

Alignment of the pension arrangement to your corporate strategy is a critical test of these policies. Over the past year we’ve seen dramatic changes to default investment funds, with providers introducing higher allocations to more ESG focused funds, or these being redesigned to match the ethos or charters of an organisation. Providers are also developing how they improve DE&I in their pension offerings, for example, through making communications accessible to all members.

Similarly, contribution designs are also being reviewed where disadvantaged groups may be unable to participate fully in matching structures. In these ways, good scheme oversight can become a vital link between your corporate policies and pension provision.

In a nutshell

Good oversight of your pension arrangement is becoming increasingly central to corporate strategy and declared values. Effective oversight is also raising UK pension provider standards, while being increasingly relied upon to support the positive financial futures and wider wellbeing of employees.