The relationship between pension scheme administration and ...

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4.InvestmentsWith the recent publication of the Investment GovernanceGroup’s ‘DC Principles’(6) and, at the time of writing, arecently concluded consultation on ‘Offering a defaultoption in defined contribution auto-enrolment schemes’(7),investment and DC remains as topical as ever.Not surprisingly, almost all respondents in our surveysaid that they have a scheme default fund in place (witha number of those that didn’t answering in the negativesimply because the question was not applicable to them).However, views were much more mixed when we enquiredabout the frequency of review of the default fund with only32 per cent of schemes reviewing it at least annually. Inthe feedback to this question, a few respondents felt thata review every 3 to 5 years was sufficient in determiningwhether their default fund remained appropriate.With regard to communication with members, nearlytwo-thirds of schemes regularly advise their members toreview and consider their investment choices and benefitstatements appear to be a popular medium for this purpose.Nevertheless, a quarter of schemes do not advise theirmembers to revisit investment options on a regular basis toensure that they remain appropriate.Are members regularly advised to review and considertheir investment choices?70.0%60.0%50.0%40.0%YesNoDon’t knowDo you have a scheme‘default fund’?4.8%30.0%20.0%10.0%12.9%0.0%We concluded our questions on investments by askingabout the intelligence that is made available to respondents.YesNoDon’t know82.3%Over 50 per cent of schemes receive investment analysisthat helps to identify risks and examines the pensionscheme investment profile. Nevertheless, there are still overa quarter not receiving such information despite its value inreviewing default funds and other investment options.How often do you reviewthe suitability of thedefault fund?AnnuallyMore frequentlyLess frequentlyNeverDon’t know2.0%14.4%42.5% 32.0%9.2%Do you receive investment analysis that helps to identifyother potential risks and examines the investment profileof the scheme (e.g. significant exposure to investment riskfor members approaching retirement)?60.0%50.0%40.0%30.0%20.0%10.0%0.0%YesNoDon’t know6. http://www.dwp.gov.uk/consultations/2010/dc-default-option-consult.shtml7. ht tp://www.thepensionsregulator.gov.uk/about-us/investment-governance-group.aspx8
5.Auto-enrolmentOur survey concluded by considering readiness forand other administrative aspects of the auto-enrolmentrequirements which start to take effect from October 2012.The reforms seek to utilise inertia in a positive way byproviding for employees to be automatically enrolled into apension scheme and then requiring them to opt out if theydo not want to be a member.Pension scheme joining processes are, therefore,fundamental to the success of the prospective regime but,according to our research, schemes are far from ready.In one of the most instructive findings of the whole survey,we found that 64.5 per cent of schemes still requiremembers to apply to join (most of them by requiringcompletion of a paper-based form) and only 4 per cent ofschemes automatically enrol employees using a fully onlineprocess.How do employeescurrently join yourpension scheme?3.9% 5.4%Another key finding, but one that is much more positive interms of readiness for auto-enrolment, is that three-quartersof schemes have no waiting period at all before employeesare allowed to join. The majority of respondents that dooperate a waiting period have one that is less than a year.Some of the schemes in our survey were closed to newentrants but, even taking this into account, it appears thatwaiting periods will not be an obstacle for employers thatwant to use their existing arrangements for auto-enrollingemployees from 2012.On the subject of which ‘qualifying pension scheme’employers are likely to use for auto-enrolment purposes,early indications are that NEST (the National EmploymentSaving Trust) is not viewed as a panacea. In fact, only 1.5per cent of respondents said that NEST would be used forall employees. Over 48 per cent plan to use their existingscheme for everyone but a significant minority have notyet reached a final decision. One respondent added thatthe “consultation on company preferred method [was] stillongoing” and we suspect that many other organisations arein the same position.Employees must apply tojoin, by completing a paperbasedapplication formEmployees must apply tojoin, but an online process isavailableEmployees are automaticallyenrolled but can opt out bycompleting a paper basedopt out formEmployees are automaticallyenrolled but can opt outonlineOther (please specify)26.3%11.2%53.2%If NEST or a similararrangement isestablished bylegislation to helpemployers with their dutyto auto-enrol employeesinto a pension scheme,will you:Use NEST for all employeesUse your existing scheme(s)for some employees andNEST for othersUse your existing scheme(s)for all employeesUse your existing scheme(s)for some employees and setup a new scheme for othersDon’t know32.5%1.5%12.2%48.2%5.6%9
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