PENSIONS INSIGHT
Pension scheme health check
Alan Morahan, managing director, DC Consulting, Punter Southall Aspire, says it’s time for a medical
I n recent years, I have found plenty of similarities between how well a person looks after themselves and what’s really required to maintain a healthy pension scheme. About sixteen years ago I was offered my first biennial medical as part of the company’s employee benefits package. This detailed health assessment lasted about two hours and included all the things you’d expect like blood tests, height, weight and blood pressure measurements, ECG (electrocardiogram) and a lung function test. While I was pleased to receive the benefit at the time, I wasn’t overly excited. However, as the years have gone by I’ve really come to value and appreciate this benefit and respond to the results it gives me. At the initial medical I didn’t really know what to expect. I remember I was generally pleased with the results, although there were a few recommendations about weight, diet and general fitness (some of which I paid attention to, some of which I probably ignored to start with). However, when I had the second medical, my appreciation of its value started to grow. I now had benchmarks from the first medical to compare against and I could see improvements in some areas and deterioration in others. This served as both an encouragement and a warning. I went home, dug my trainers out of the wardrobe and conscientiously set off for a run that very evening. Now eight reports later, I have some solid statistics I can reflect on. This insight into how I’m getting on and the progress I have made, has helped me keep on top of my wellbeing. I have a general strategy
and plan to keep on the good side of the various biometrics. I believe the same approach should be applied to pension scheme governance. One of the common problems we see is that once the scheme has been set up and is in place, many people take the ‘if it ain’t broke…’ view. They believe the scheme will tick along looking after itself and they don’t need to monitor it too closely. This just isn’t the case. ...many of us are currently beyond politics, certainly beyond worrying... The more enlightened recognise the importance and value in reviewing the scheme regularly to ensure it is performing properly and understanding that if not, they can make any necessary adjustments and tweaks along the way. So, if a pension scheme were to go for a medical (otherwise known as a governance meeting), what criteria would it be tested on? ● Administration – Good administration should lie at the heart of any scheme. If that gets clogged up the whole thing can start grinding to a halt. During the first few years of automatic enrolment, we saw that many administration systems were struggling to cope and scheme members suffered as a result. People’s confidence in a scheme can be quickly lost if members receive incorrect statements or requests are not promptly and accurately actioned. So, the ‘doctor’s’ advice here would be to stay on top of your scheme administration, or if you don’t have the resource in-house, employ a
professional pensions consultant to manage this on your behalf. ● Funds – Funds, particularly the default fund, are analogous to the lungs; fund performance is what powers the scheme on and it needs to be constantly monitored to ensure it’s delivering the expected outcome for the appropriate level of risk. Investment markets are extremely dynamic, particularly in these uncertain times, and some funds are lagging their own benchmarks, never mind the performance of their competitors. Essential for good governance is to keep track of market and fund performance and make sure your funds, and especially the default fund (where, after all, over 90% of your scheme members are likely to be invested) scheme’s BMI (body mass index) – how heavy are the charges relative to the value provided? Since 2016, we have had the 0.75% charge cap for qualifying schemes but many schemes are still carrying weightier charges than necessary. A regular review, with some benchmarking, should identify this and allow a negotiation to take place to achieve better rates for your scheme members. The main point to consider is that independent governance should never viewed as a hassle or an unnecessary expense. Done properly it can ensure a scheme remains healthy and efficient, and achieves its objective of being a valuable part of a reward package, aiding recruitment and retention and allowing employees to retire with a decent level of income. So, if you haven’t assessed your scheme recently, isn’t it time to book that medical? n are performing as well as expected. ● Charges – And then there’s the
| Professional in Payroll, Pensions and Reward | July/August 2017 | Issue 32 44
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