A common theme arising in our survey this year is the greater emphasis being placed on pension outcomes. More respondents than ever selected providing a sufficient pot for members to retire with as their main driver for their schemes. There was a growing recognition that monitoring and influencing outcomes is as important, if not more so, than measuring inputs across areas such as contribution levels, communications and investment performance.
This is a really positive direction for DC pensions, as the management of schemes evolves to consider what members will receive in retirement; whether this is enough; and how we can help them either by default or by nudging them into taking the right decisions.
This report includes commentary and insights from subject matter experts across Aon’s extensive DC team and wider retirement business. Each chapter also finishes with a short checklist of some practical actions that schemes can take to deliver better outcomes for pension members and scheme sponsors.
Download reportThe chapters within the survey cover:
Understanding employee demographics and how employees make decisions should influence DC plan design and implementation models, to aim to improve the resulting outcomes. This section considers the objectives and priorities for DC schemes as well as understanding changes to operating models and whether time and resources are focussed in the right areas.
Five in ten
DC schemes now have a main objective of delivering adequate retirement income, compared to three in ten two years ago.
Around half
of schemes are considering changing structure for a range of reasons, including reducing governance burden and costs as well as expecting better outcomes for members from an alternative structure.
Six in ten
would like to spend more time on communicating about pensions with employees.
Making adequate and regular contributions is one of the key pillars of good member outcomes in DC schemes. It is positive to see that, despite the financial pressures of the COVID-19 pandemic on employers and employees, median contribution rates have remained stable over the last two years, albeit with significant variation across sectors. Far greater attention is needed however, on understanding pension outcomes and whether current contributions are likely to be sufficient.
Average default contribution rates are relatively unchanged, at around 6% from company and 4% from employee.
Half
of schemes have more than one contribution structure in place.
63%
do not know the expected outcome for a typical member at retirement.
While it will always be important from a recruitment and retention perspective to benchmark pension offerings against peers, taking the long-term view on delivering adequate outcomes that enable people to retire at an appropriate time is vital from a business perspective.”
Aon's Expert View – John Foster, Partner DC Consulting
Investment returns achieved after charges are a critical factor in delivering the best possible outcomes for members. For most members, the default investment option plays a key role in delivering these outcomes.
The optimum default investment option for pension scheme members needs to get the right balance of target returns versus risks as well as aiming to be appropriate for the way in which members will access their DC pension savings in retirement.
The trend away from defaults targeting annuity purchase continues apace.
90%
of schemes monitor investment performance of funds against benchmarks, but only 30% consider the aggregate performance experienced by members.
40%
of schemes now assess all of their investment options against ESG criteria, up from just 10% two years ago.
The principles of smart design and smart governance are vital to deliver good pension outcomes for members of DC plans. However, a smart approach to engagement is also key to ensure that the right messages are being delivered to the right people at the right time and in the right way.
Nearly half
of schemes plan to provide more targeted communications over the next two years.
Just a third
consider Diversity, Equity & Inclusion principles when planning their pension communications.
Two-thirds
of schemes measure changes in member behaviours to measure the effectiveness of their communications, while one-third of schemes monitor what impact this has on projected retirement adequacy.
Nearly half
of schemes plan to provide more targeted communications over the next two years.
Just a third
consider Diversity, Equity & Inclusion principles when planning their pension communications.
Two-thirds
of schemes measure changes in member behaviours to measure the effectiveness of their communications, while one-third of schemes monitor what impact this has on projected retirement adequacy.
Over the last decade, there have been wide-reaching changes to the way in which people retire and when they retire. People can now flexibly access their workplace pension from the age of 55 onwards, will receive their State pension at different ages, and are not compelled to retire at a fixed age. How are schemes keeping up with the pace of this change?
35%
of schemes say they align their default retirement date with State Pension Age (SPA) – although the reality is believed to be far fewer.
39%
of schemes currently signpost a financial adviser firm for advice at retirement, with a further 19% planning to do so in the next three years.
17%
of schemes now offer drawdown at retirement via an external master trust.
