The Employee View of ‘Value for Money’ in Workplace Pensions
March 2017 | By Jane Craig, Partner, Insights
The Independent Governance Committees (IGCs) of UK DC pension providers, responsible for representing the interests of scheme members, have been set quite a task by the UK regulator in assessing how well their providers are delivering ‘Value for Money’ (VfM) for members. Quite rightly, they have placed importance on the member perspective to this question. There are several reasons why this is a tough question to pose, not least because of the product complexity, the lack of comparability and the fact that employees themselves don’t choose their pensions provider.
Employees do however have a view on this. We engaged with over 15,000 members from 10 of the leading UK DC pension providers and through a carefully structured research process, asked them what does good value for money mean to you? Consistently through all stages of research perceptions of VfM focus around “a good return on my money” – the number 1 attribute from 23 tested in a large-scale quantitative survey. Consumer workshops revealed that this is underpinned by the total amount of contributions going in and the quality of pension provision and member experience. It is certainly more than simply good investment returns. Members are also highly concerned about the financial security of their pension and consequently the protection and strength of their providers is an important component of VfM, hence showing appropriate controls, safeguards and being a reputable brand is important to them.
Member Assessment of Workplace Pension Attribute Importance
(base 13,742 pension scheme members)
Interestingly charges are not front of mind for members – this is in part attributed to low understanding but is also influenced by views that the quality of the overall pensions experience is more important – as long as pricing is fair and in line with the competition members believe other elements of their pension experience are more important. This was clearly seen in both the workshops and the quantitative survey. It’s important however to highlight that members fail to connect the impact of charges on their good returns – it is therefore up to the providers to help them do this.
Education is highly influential in helping members understand how a good outcome at retirement can be achieved; members place far more emphasis on support and engagement tools when they understand the benefit of connecting more with their pension. Education is vital for increased awareness and usage of pension features (several of which are available to members but not known about) which in turn will lead members to feel a little more in control of their pension; the research revealed there is a great deal of willingness to engage if the barriers and misconceptions can be removed, or at least reduced.
The results show a combination of provider proposition features and industry structures are important. Many of these are being delivered already by providers but effectiveness and cut-through of education and communication needs improving to engage those members that feel remote from their workplace pension. There needs to be an ongoing commitment by providers if perceptions of overall value for money are to increase – and measuring at around 6 out of 10 currently, there is plenty of room for improvement