Many auto-enrolment pension policies are now approaching their anniversary. This offers SMEs a chance to take stock and reflect, but just how many will?
In many cases, simply fulfilling the obligation has been, and will be, satisfactory – just another box ticked to ensure that they are meeting the legal requirements. Put to the back of the mind and forgotten. But how many others will seriously consider switching providers?
There will be some who want to reduce the monthly costs paid for the policy – just like any other business cost to be managed down as far as possible – which for any business will be a key consideration, particularly for smaller ones. For businesses who view auto-enrolment as a ‘necessary evil’, cost was/will likely be the most important factor in choosing their policy, and by extension, whether they decide to switch from their current provider
Some businesses however may see auto-enrolment as an opportunity to improve their relationship with their employees. To improve their employee benefit offer. In this case, there will be a number of additional factors to consider, largely driven by their perception of what their employees want out of a workplace pension. The most obvious here is the performance of the investment itself – are your employees getting the most for their monthly contributions? There is a large variation in the performance of the UK’s workplace pension schemes, with some policies returning 5 times lower than the market’s top performers. This is a significant difference, so for organisations that want the best for their employees, might they feel compelled to trade up to a better performing policy?
There are several other factors that can be considered when you are focusing on the best possible policy for your employees. You may want to give your employees maximum flexibility with the policy, so that they have a level of freedom in how they approach their investment. It may be that your employers value simplicity, in which case you want a policy that is as easy as possible to understand.
What does this mean for pension providers?
How can pension providers ensure they are offering relevant auto-enrolment products to their clients? Research from Hargreaves Lansdown has shown that in 2017 more than 90 percent of people were invested in their workplace’s default fund. Understanding why this is the case is critical for pension providers who are looking to make an impact with their auto-enrolment policies.
Ultimately, it is the company itself that will be making the decision on which policy they go for, and so pension providers must be able to identify which organisations are sufficiently engaged in providing the best possible policy for their employees. Is there a particular profile of company that is more likely to shop around on behalf of their employees? And what are their main motivations for doing so?
Once this is understood, it then becomes a case of understanding the needs of the employees within these organisations, so that products can be tailored to meet these needs.
Are employees making a conscious choice to stick with the default? If this is the case, then perhaps it is the policies themselves that need to be examined.
It is unlikely that the best solution for every individual will be the same, so if the majority of employees are not choosing to customise their plan, it suggests that the level of customisation on offer is not sufficient to meet the needs that different employees will have.
Alternatively, is it a lack of understanding or engagement with the policy? This would require an examination of the level of communication received by the employees, either from their employers or by the pension providers. For employees to be able to customise their own plans, they need to be able to have a full understanding of the policy and the options available to them.
As with any government enforced scheme, it may well be that there is a certain apathy, from clients and providers alike, that this is just something that ‘has to be done’. With a greater understanding of client demands, however, comes an increased focus from pension providers on their auto-enrolment policies, which will lead to greater competition, more relevant policies, and, ultimately, improved retirement prospects for employees.