Steve Moore: Why DC pension schemes should offer the same comfort as DB schemes

Wouldn’t it be great if defined contribution schemes could provide similar levels of comfort and security as defined benefits schemes? Where members can have a high degree of confidence that their pension will be ready and waiting to provide them with a reasonable income when they retire?

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That’s the objective we have been working towards with our own staff during 2015, using a pensions modelling tool called Guided Outcomes (in the interests of transparency: yes, GO is developed by Hymans Robertson).

Our research shows that 62% of our employees are not saving enough for retirement. It’s hard to get most people to even engage with pensions, let alone to save more. So we tried to make it as easy as we can.

Our employees can use the tool to see whether they are on track for the retirement they want. They can see what their potential retirement income will be, based on their pension saving habits to date.

The tool also factors in how much they may receive from their state pension and how much they have saved with previous employers. Using our model, the system then determines a simple ‘traffic light’ outcome of red, amber or green to assess whether they are on track to reach their retirement target.

For the many people who are ‘red’ (unlikely to achieve a reasonable retirement income), they can consider different scenarios by illustrating the impact of varying contribution rates or their retirement age.

In each new scenario the model will tell them whether this will get them to the ‘green’ (highly likely to achieve a reasonable retirement income) outcome we all crave.

The modelling is linked to our pension scheme provider’s system, and factors in which funds each person is invested in and makes assumptions based on a range of potential investment outcomes.

The provider link also ensures that changes plan members make to their retirement age or contribution rate are automatically fed from the solution straight to the pension provider.

But the real beauty in all of this, for those who don’t feel they have the knowledge or indeed the inclination to manage their own plan, is an ‘automatic’ function that allows the individual to step back and let the system guide them to the outcome they want so that at retirement, their pension is ready and waiting.

The launch went down very well. The key has been to support the technology with a comprehensive communications campaign that has been well received and engaged people at the right level. Starting with teaser campaigns to raise awareness and build anticipation, the campaign built to provide more information before everyone received a paper statement showing them how their pension savings currently fared, before gaining full access to the online system.

We are also really pleased with the response we have had from the 624 people who are eligible to use the system. To give you a flavour, within the first two weeks:

70% of people logged onto the system
Three quarters of those logging on also logged in multiple times
Only 1 person has chosen to opt out of using the system
10% of plan members have made active decisions (whether increasing contributions or changing retirement age or sticking with what they have)
A further 30% investigated setting their own approach to retirement (as opposed to the approach set by the system)
A doubling of the number of people who now feel “Well” or “Very Well” informed about their retirement savings having interacted with the system

For me as a pension manager it has also given me invaluable data and insight. I can even target communications to different groups based on whatever actions they have taken, so I can be sure the communications remain relevant.

This article was written by Steve Moore, head of HR at Hymans Robertson.