JLT Benefit Solutions has outlined a 10 point plan for pension scheme governance which it said could improve member outcomes by as much as 60% without employers having to contribute more.
In Business benefit or blind faith? the company said the 'evidence-based and outcome-focused' strategies would make private sector defined contribution pensions work better for business and for employees under auto-enrolment.
Adopting the strategies could deliver employers an effective increase of 3% in the company contribution, rising to 4.7% where a member qualifies for an enhanced annuity, JLT said.
Equivalent to more than £50m a year in additional contributions, this would mean a typical employee could add nearly 40% to their annual pension, while members with an enhanced annuity could add almost 60%.
The 10 strategies in the report are:
- Improved default funds in relation to investment and risk management.
- Salary exchange and the adoption of 'save more tomorrow'.
- Reduced annual management charge.
- Automatic use of the open market option.
- Automatic assessment for enhanced rates.
- 1% increase in employee contributions (not required for the c. 40-60% increase in the potential pensions noted above).
- Streamlined transfers-in of members' legacy DC pots and a scheme-facilitated pension tracing service.
- Improved self-select investment fund evaluation.
- Retirement management control evaluation.
- Improved scheme governance committees with training for member representatives.
Duncan Howorth, chief executive of JLT Benefit Solutions, said the report did not seek to replace the Pensions Regulator's guidance on defined contribution pensions, but aimed to make to practical for business. This would ensure employees and employers can achieve the best possible outcome from their schemes, he said.
'The strategies outlined in this report can be implemented readily by larger employers that have the appropriate scheme infrastructure and which already use a skilled benefits consultant,' he said.
'However, for auto-enrolment to succeed, these strategies need to be made available to smaller- and medium-sized employers, so that all auto-enrolled employees can enjoy the prospect of a higher pension, irrespective of their earnings and their employer's pensions capabilities.'
Mr Howorth said the Pensions Regulator and Department for Work and Pensions should consider evidence-based and outcome-focused governance for all schemes.
They should also 'encourage initiatives that ensure high level, principles-based guidance can deliver a measurable return on the employers' investment in good pension provision', he added.