Value for money – employers matter too

Stand by your brand

Choosing the right master trust is vital to optimise member outcomes. But selecting the best provider with whom to partner also has the potential to create value for employers and unlock compelling employer brand benefits. Generating a positive return on investment from pension schemes is now within reach for employers.

It is now almost 350 years since the world’s first ever occupational retirement pension scheme was set up for the benefit of retiring Royal Navy officers, when the average life expectancy was 48. The Navy is proud of its traditions and with this farsighted pension innovation, it established a new one and also a precedent: since 1672, the focus of workplace pensions has rightly been on improving outcomes for members. This tradition continues in the present day with auto-enrolment, enhanced governance, default strategies, better communication and the growth of master trusts.

However, as the legendary Madison Avenue advertising pioneer David Ogilvy famously observed in the 1960s heyday of Mad Men, every audience will ask one key question about any proposition put to them:

What’s in it for me?

In the last two decades of pensions change and reform, that question has been asked repeatedly on behalf of the members of workplace defined contribution (DC) schemes. The constant iteration of responses to this fundamental question has shaped the rapid evolution of scheme structures over recent years.

From group personal pensions, stakeholder pensions, master trusts and the introduction of The Pensions Regulator (TPR) to auto-enrolment and pensions freedoms, the member has been front and centre.

This has been particularly evident since 2012, when employers were compelled by law to enrol all eligible workers in a workplace pension. But what of the employer? Any brief perusal of the current pension debates and discussions reveals that the topics are inevitably framed around employers’ obligations. There is seldom any reference to the benefits for employers. In this paper, against the backdrop of the latest convulsion to shake the industry in the shape of consolidation, we ask a single, fundamental question: What does a good outcome look like for employers, the sponsors of DC schemes, and how do they achieve it?

While regulation is the driver behind workplace pension provision, most employers are nevertheless committed to enhancing their employees’ pension savings from an altruistic sense of duty, a belief that it is the right thing to do, and, increasingly, from a risk management perspective.

However, enlightened self-interest would dictate that their munificence bring some reward too, in providing solutions to the predicaments that many employers currently face. We examine the major challenges overleaf and evaluate how a considered pension strategy can play a significant role in addressing them.

We ask a single, fundamental question: what does a good outcome look like for employers, the sponsors of dc schemes, and how do they achieve it?

What do employers want?

Beyond dealing with the extraordinary times in which we are living, companies currently face a plethora of challenges with their pension provision: the pressure of keeping abreast of regulatory change; coping with a challenging investment environment; the ongoing migration from defined benefit to defined contribution and the constant exhortations to improve measurement, reporting, review procedures and risk analytics.

On top of that is the need to enhance member engagement and improve governance which, for single employer schemes, necessitates the recruitment of skilled and motivated trustees.

According to original research carried out by Capita for its in-depth Future Face of Retirement Survey 2019, 93% of large employers in the UK are keen to modernise their pension provision while 91% are determined to derive more positive outcomes from their pension provision for the benefit of their business and employer brand.

With this objective in mind, the vast majority (88%) reported that they had either reviewed their pensions strategy or planned to do so within 12 months in the light of changing workforce dynamics and an ageing workforce. We explore the implications of these twin market dynamics.

Workplace pensions: the secret weapon that must be targeted

After salary, the workplace pension is the second biggest investment an employer makes in employees. It is increasingly asked about as part of an employee’s assessment of the company in terms of the classic trinity of reward, recruitment and retention.

Beyond this it should help differentiate their employer brand and reputation and allow them to stand out from competitors. An effective scheme will also add value by ensuring that employees are capable of exiting the workforce at the time of their choosing, thus facilitating succession planning objectives. A constant transfusion of new talent, energy and skills is necessary for any organisation. Clear career trajectories matter.

A medium-sized company will typically spend several hundred thousand pounds a year on its pension provision but are they generating a return on that investment in terms of enhanced employer brand? Research indicates that seven in ten employees consider workplace pensions and pension contributions highly when looking for a new job (69%), whereas almost half of employers (46%) don’t even promote their pension scheme as an employee benefit when recruiting, suggesting a big disconnect between the two groups.

In fact, 57% of employers think that the amount they contribute to the pension scheme doesn’t make a difference to employee recruitment. So, are employers missing a trick?

Pension contributions from their current employer are highly valued by a significant proportion of employees. This suggests that employers have an opportunity to use workplace pension contributions as a useful tool to help retain valued employees. When looking at the range of benefits currently offered by employers to how much employees value them, while 85% of employees surveyed value their holiday entitlement, their employer’s pension contributions came a close second at 83%.