Employers: are you keeping track of your workplace pension?

Employee benefits are a critical component to recruiting and retaining a productive team as part of an employee’s overall compensation package and one of the most costly benefits for an employer is the requirement to operate a Workplace Pension.

Following the introduction of Workplace Pension auto-enrolment ten years ago, total annual contributions have increased from £81.7 billion in 2012 to £114.6 billion in 2021.

Across all regions in the UK, and almost all sectors, current Workplace Pensions enrolment is somewhere around 90% of all workers. This figure will increase over the next five years with the widening scope of auto-enrolment and pay rises pushing up contributions.

For employers, this means significant additional costs.

When introducing a Workplace Pension, employers work hard to create detailed specifications and carry out rigorous research before choosing a provider. But once the ink has dried on a Workplace Pension contract, scrutiny often becomes less intense.

It’s tempting to think that once pensions have been transferred to a third party, this is ‘job done’ for the employer. But there are still some important questions to answer to ensure your Workplace Pension is:

• Fit for purpose
• Offering value for money
• Helping to foster employee loyalty and retention
• Aligned with the latest developments in the pensions space
• Underpinned by a solid investment strategy
• Providing positive outcomes for members and engaging them
• Cost-competitive

Pension providers’ services change over time, and so does the market as a whole. If you aren’t assessing your pension scheme arrangements every couple of years, your  provider could be falling behind others in the market and costing you more in the process.

How do I know if our pension scheme is still right for us?

Creating an in-house governance committee is a good first step towards making sure that a pension scheme continues to meet expectations.

The main goals of a governance committee are to:

• Monitor the service delivery of the pension provider, manage costs to make sure that the scheme offers value for money compared to others in the market, and identify and manage key risks to employees’ savings.
• Build a strong long-term relationship with the provider so that both parties’ future plans and any performance issues can be discussed in good time.
• Negotiate new terms if the arrangement is uncompetitive in current market conditions.
• Consider appointing a different provider if there are ongoing problems or governance issues.

How do I set up a governance committee?

Regardless of how many employees you have, appointing a committee to oversee your Workplace Pension arrangements should outweigh the time commitment of committee members.

Whilst costs would traditionally sit with finance teams, increasingly HR teams are often uniquely positioned to leverage labour data, align with workforce needs and understand the employee compensation and benefits landscape as a whole.

Here are some tips on getting started:

There are no rules on how a governance committee should be run, so set your own terms of reference to define the remit. The Pensions Regulator has a helpful document which highlights the key areas the committee could focus on. Also, your pension adviser may have experience of governance committees in other organisations and be able to help.

Agree when and how often to meet. Often a quarterly, or even less frequent meeting is sufficient – as long as it is consistent.  It does not need to take a lot of time, particularly for a smaller or less complex scheme.

Many employers use the pensions trustee board model as a starting point. Although governance committees don’t have the same legal powers as a trustee board, some of the same practices and rigour can apply to a governance committee.

Beyond HR it would be usual to include one or more employee representatives or other internal managers. The committee can invite someone from the pension provider and possibly the company’s employee benefits adviser to assist in meetings.  Some committees also include an independent professional trustee who will have a wider perspective on pensions governance and experience in monitoring providers.

What are some other advantages of a pensions governance committee?

There are other advantages to having a governance committee, especially when it comes to integrating pensions with HR strategy.

These include:

• Linking pensions with wider financial wellbeing programmes and other benefits.
• Aligning communications from the pension provider with other HR/corporate messages on topics such as diversity, equity and inclusion and environmental concerns.
• Exploring savings trends, such as gender pensions gaps, or increasing opt-out rates. These can then start conversations about how to address these issues.
• Making sure ill health or death benefits are paid correctly and families receive a sympathetic and coordinated experience during the process.

How ZEDRA can help

Even if you no longer run a pension scheme in-house, it’s essential that you continue to offer employees a good quality, cost-effective way of saving for retirement. Governance committees, including expertise from specialist professional trustees like ZEDRA, are an excellent way of achieving that.