[Skip to content]

Sign up for our daily newsletter
The Actuary The magazine of the Institute & Faculty of Actuaries

DC pensions failing to measure progress

Defined contribution (DC) pension schemes in the UK are struggling to assess their effectiveness, with a worrying one in three failing to measure progress against objectives.

Schemes failing to measure progress ©iStock
Schemes failing to measure progress ©iStock

The finding was uncovered by a recent survey of more than 200 DC schemes by Aon, which together account for over half a million members and £50bn in assets.

It also found that 65% don’t know the projected outcome of a typical member, despite the same proportion saying they want to communicate more with workers on pensions.

Additionally, the findings show that more schemes aim to benchmark contribution rates against peers than to deliver sufficient funds for employees to retire.

John Foster, principal consultant at Aon, described pension schemes' efforts to measure progress as "hit and miss", and said they are failing to actively demonstrate value.

“It is key to make sure that there are robust measures in place to be able to check progress against objectives and to identify where resources can be best focused," he continued.

"While it’s right that there has been a strong focus on what is being paid into DC schemes, it’s vital that the focus is not just on the short term but just as strong on what the outcome will be.”

Despite failing to adequately measure progress, the survey found that most want to do more than the minimum level required, offering competitive, good value schemes.

And although they are struggling to measure engagement and effectiveness, 32% of schemes now communicate targets to help employees plan for a comfortable retirement.

It was also found that over a third do not delegate investment decision-making to a third-party investment professional, but that one in six trust-based schemes expect to do so more within three years.

Moreover, the findings show that one in three trust-based, and one in five contract-based schemes, plan to move to a master trust structure in the next five years.

"Many schemes are moving to a master trust structure to help with their aim of delivering better member outcomes," said Aon partner Jo Sharples.

"We believe this could help them free up time and resource to focus on retirement adequacy, or for the master trust providers themselves to pick up on the adequacy challenge.

“Either way, it is imperative that those running pension schemes understand the areas where they can really add value and which areas could better be delivered through a professional third party."

Sign up to our free newsletter here and receive a weekly roundup of news concerning the actuarial profession