For many companies, setting up the pension is a tick-box exercise. After all, when you’re a small team responsible for everything from hiring employees to sales and marketing, getting your pension scheme underway can understandably come bottom of the priority list.
But somewhere down the line, there comes a point when you want your pension, alongside your other benefits, to attract, retain and reward staff. Often, this coincides with a review of the pension set-up and whether a different pension provider should be part of a revamped offer.
In this article, we’ll discuss the things you might want to consider when thinking about changing your pension provider.
Considering your options
Broadly speaking, there are three types of pension provider you might want to consider:
Auto-enrolment focused master trusts. Most likely, you previously set up your pension with one of the large Master Trusts such as Nest, The People’s Pension, Now Pensions or Smart. These providers offer one standardised proposition, servicing millions of members.
Pension providers focused on medium to large companies. A number of other providers such as Aviva, Scottish Widows, Aegon, L&G, Phoenix Life and Fidelity offer a pension product focused on medium to large companies. There are two main types of products they offer: a master trust or a Group Personal Pension (GPP). From an employer’s perspective, both are quite similar, but have subtle legal differences. These providers might also allow you to put together a bespoke package (Investment options, fees, employee workshops) which is tailored to the profiles and needs of your employees. They often have a minimum number of employees as a prerequisite for their services and might charge an ongoing employer fee.
New pension providers. There are a number of newer pension providers on the scene who focus on providing an up-to-date digital experience. The most notable are Cushon, Penfold and Collegia.
When thinking about your pension provider, you’ll want to consider three key issues: financial outcomes, digital experience and employer support.
Getting the best financial outcome for your employees
Fundamentally, you want your employees to benefit as much as possible from their pension.
There are a number of factors that influence the financial outcome for your employees, including:
- Fund charges
- Performance of the default fund
- Investment choice
- Financial education and pension engagement
The charges levied on pension accounts have a significant impact on eventual pot size. Every 0.1% in extra annual charges for your employees may reduce the size of their eventual pension pot by just over 2%. So, if your pension provider charges 0.5% more than other pension providers each year, the amount of money your staff end up with could be reduced by around 11%.
It’s become increasingly difficult to differentiate pricing amongst pension providers now that all charges are capped at 0.75%. In reality, although there’s not much difference between the auto-enrolment focused master trusts, there are subtle differences that are worth paying attention to. Some charging structures, for example, reward employees for keeping pots with the provider over a long period of time (e.g. Nest), whilst others are better for those with bigger pot sizes (e.g. People’s Pension). The most important thing is that you make sure you review the charges and compare them with your current provider.
Performance of the default fund
The default fund is the investment selection that will be chosen by a pension provider unless employees actively state that they want their money invested in a particular fund. According to the Tax Incentivised Savings Association (Tisa), 95% of pension funds are invested with the default strategy, so the performance of the default fund matters.
To find out more about default funds, read this article, and for a recent comparison of fund performance across a range or providers, see this summary in the FT. Bear in mind that fund performance varies over time and taking a snapshot over a particular duration may not be indicative of long term outcomes. If you want to dig deeper into fund performance, this is where speaking to a benefit consultant can really help.
With the increasing popularity of digital first investment platforms such as Nutmeg, Moneybox, Wealthify, etc., there’s a growing interest in giving employees a wider set of options for their pension investment fund. But, the jury’s out as to whether this is really in the best interest of employees. Research from the US, Australia and Sweden (where people were encouraged to make investment choices with their pension funds) indicates that the vast majority will generate poorer returns than if they had left their money in the default fund. The reasons are varied, but most relate to behavioural factors: performance chasing, not reviewing investment choices regularly and equating high fees to high performance. Here is a more recent report on this topic. This is the reason why most pension providers will have a limited choice of funds.
Financial education and pension engagement
It’s inescapable that one of the biggest predictors of financial outcome is the amount employees invest into their pot. The 8% default contribution rate is only 50% of what experts recommend most of us should be saving. So, if you really want to support employees, consider how to help them increase the size of their investment. Changing the amount and structure of your employer pension contributions is one way of achieving this, but educating employees about their pension savings is the other side of the coin. As an employer, there’s lots you can do to help your employees reach their financial targets.
Providing a good digital experience
An area where the auto-enrolment master trusts tend to fall behind is their digital offering. Neither Nest nor The People’s Pension, for example, have an app and their digital experience can be a bit clunky. This matters more for some employees than others and with account aggregation tools becoming more popular, there is an argument that this shouldn’t be a priority above focusing on the financial outcome.
Getting employer support
Maintaining the company pension can take time and energy. When thinking about your pension provider, you’ll want to consider two key aspects of the support you’ll get:
- How easy it is to transfer data from your payroll system to your pension provider. Whenever you do a payroll run, you will have to let your pension provider know who has been enrolled in the pension and how much they are contributing. Some pension providers integrate with your payroll to get this done in one easy click, but quite a lot of providers don’t have this option. Make sure the provider you choose has an easy way of letting you upload this data.
- How easy it is to get help. Pensions can be complicated and sometimes things go wrong. Or you may have questions on how certain elements of the pension plan work. Being able to talk to someone at the pension provider to get clarity is always helpful. You should check the level of support the pension provider provides for employers, e.g. telephone help line, chat functionality, email or community board for Q&As.
Maji’s here to help
Maji’s platform is designed to support and enhance your workplace pension. Our financial planning and coaching app adds a 21st century digital experience to your pension provision, no matter your pension provider. We’ll bring to life your pension provider’s offer with personalised videos and bitesized information, financial modelling tools and money coaching. Employees can see and control their savings rate through their Maji app, alongside pulling in the valuation of all of their other pension accounts.