Our expert

  • Andy Parker

    Andy Parker

    Partner

  • The road is long...


    We all know how much hard work, time and cost is involved in the day to day operation and oversight of a well run defined contribution (DC) plan. And the effort required shows no signs of abating any time soon.

    Employers of all shapes and sizes, sometimes driven by the trustees of existing schemes, are deciding it’s time to begin a new journey, to make a move into the new digital, multi-faceted, eco-friendly world of DC 2021 and beyond.  

    If you fail to prepare...

    Change is not an easy ride and like any journey there can be bumps and scrapes along the way. The key is to be well prepared in advance and to follow a well-trodden path. This should be a change for the long-term, not something to repeat every couple of years. Working with someone who knows the way, the known challenges can be spotted and managed and the unknowns can be handled confidently, should they crop up.

    Step 1 – Analytics

    At the start of the journey you need to invest some time to be clear on where you are now; where you want to get to and what obstacles (let’s call them opportunities) you have in your way. Use the tools you already have at your disposal - mine the information you already have to inform the debate.  

    You are going to need a ‘can-do’ team; finance, HR and trustee representatives (if you want to move the current scheme to the new world too) to be mapping out the journey. They will all have critical roles to play. It can be really useful to get employee views too (don’t be afraid to go and ask them what they want).

    And be on the lookout for some problematic potholes right at the start:

    • Current rules
    • DC or DB too
    • Underpins
    • Guarantees
    • With-Profits
    • Penalties
    • Protected benefits
    • Protected pension ages

    Create a map with what you learn and re-visit it as you go along to make sure you are still heading in the right direction.  And be prepared to be flexible – what is imperative at the start may turn out to be less so as your end destination comes into sight.

     

    Step 2 - Consultancy

    With your map to hand you can now start to look for the most appropriate organisation to help you reach your destination. Consideration of all the options is crucial; an independent understanding of ‘the art of the possible’ should not be under-estimated; who can offer the best administration, the most engaging approach for members; the most innovative and rewarding investments (if that is what you want)? And at the best price? And by ‘best price’ we mean ‘best value’ and ‘sustainable’, not necessarily cheapest. Will you get the best terms available?  

    Make sure your potential partner understands what you need and what you are like; it is no longer just about pensions; it is about holistic savings and broader financial wellbeing too. Taking a wrong turning at this stage will not get you to where you want to go. 

    The potential supplier should come and present; go to their offices and ‘kick the tyres’. Meet the people you will be working with, not just the best presenters. It is going to get busy with many employers on a similar journey to you – does the provider have capacity or will there be bottlenecks that will cause delays?  

    Refer back to your map and check you are still on track. Negotiate hard – are the charges the best they can be, will they meet transition costs, what additional value can be gained, what are they developing next and is that what you want? Will you have a voice? Having a knowledgeable travel companion will undoubtedly help you make the right decision.

    Step 3 – Deliver

    When you appoint a partner, be clear on what they will offer. There is no point paying someone extra to help implement your plan, to manage the transition, when the provider will do it within the price. You can be quite confident here, most providers do have the ability to implement and transition existing arrangements pretty well.

    But remember – you don’t know what you don’t know. Try ‘keep them on their toes’ by retaining some independent help, particularly if there is contractual change too – providers typically don’t help with that.

    Check that the journey time is long enough to implement successfully; timescales can be squeezed, but not at the cost of poor implementation or worse, half-hearted engagement with employees. You must bring them on the journey with you or they will forever be playing catch up in this most important (and complex) of areas.

    You will also need to make sure that you take care of all of the ‘internal interactions’ your company has with employees (contracts, intranet, handbook, risk benefits, to name a few) which providers don’t think of and can’t help with. From experience, this can be quite a significant area of work to consider.  

    Step 4 - Check

    The final part of the journey as you arrive at your destination is to look back at the map and check that where you have arrived matches your aims, objectives and beliefs that you set out with and if not, that it is OK that it doesn’t.

    Although you may have considered change because of the governance burden, there is still a role to play in checking that your destination remains the right one for you and your employees into the future. Using that map again will mean you can check that you are still on the right path, with the right provider, taking your employees and you, as the plan sponsor, in the right direction.  

    As the title says, the road is long, but following a structured route and being aware of what needs to be done will enable you to reach your destination and bring about change successfully for you and for your employees.

    Stay up to date

    Get the latest independent commentary and exclusive insights from a range of experts at the forefront of pensions, investment, insurance and risk – tailored to your preference.

    Subscribe today

    Knowledge hub: defined contribution pensions

    See more of our independent commentary and exclusive insights covering all aspects of the changing DC pensions landscape.

    Read more