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Article | Pensions Briefing

Stay in control of your outsourced DC pension plan

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By Gemma Burrows | March 2, 2021

We explore how employers can maintain oversight of their significant spend into outsourced DC pension plans to meet the needs of their employees and themselves.

As a growing number of employers and scheme sponsors look towards a master trust as an efficient means of delivering their defined contribution (DC) pension provision, and with the already established market for contract-based schemes, many recognise the importance for effective oversight from a strategic and corporate perspective. Although master trusts and contract-based plans operate with their own trustee boards or Independent Governance Committees (IGCs), the oversight that these can bring will inevitably be generic and will not always focus on specific issues that may be important to the Company and their particular membership.

Continued trend to outsourced DC pension provision

Our recent 2020 FTSE 350 DC Survey showed that 61% of the FTSE 100 and 83% of the FTSE 250 now operate either a master trust or contract-based pension scheme. Our expectation is that these percentages will rise following the ambition from the Regulator for further consolidation in the DC market.

Chart showing the growth of master trusts useage in FTSE 100 from 15% in 2018 to 22% in 2020. And in FTSE 250 companies from 20% in 2018 to 22% in 2020.
Master trusts gain ground

Master trusts useage in FTSE 100 and FTSE 250 companies

For many, the move to a master trust or contract-based scheme will be the first experience of ‘outsourcing’ an integral benefit for their employees. However, whilst aspects of the DC pension plan are left with the master trust trustees or contract-based provider, employers still wish to oversee their selected pension provider, ensure the plan continues to perform well, that there is a well-designed and effective strategy to help members engage with their plan and importantly, that members are supported in achieving the best outcome for their savings.

This is not about attempting to replicate a traditional trustee model, instead it’s about aligning a core employee benefit with a set of objectives and having adequate and proportionate oversight of the ongoing contribution spend.

With this employer oversight, members of the DC pension scheme can benefit from:

  • A pension provider that is being held to account by its employer
  • A joined-up communication strategy between the employer and pension provider
  • A well-designed investment strategy that appropriately caters for the membership
  • Competitive charges that have been negotiated by the employer

Oversight should also enable the employer to understand whether members are on track to achieve their desired outcomes in retirement and if the retirement benefit being provided is delivering to its intended objective. To help members understand what income is needed to fund certain living standards in retirement, the PLSA has developed a set of retirement living standards and this can also be an important tool for employers to gauge, at a scheme level, what retirement might look like for their employees.

By putting in place a robust and proportionate framework, as well as the right analysis to provide meaningful insight into the potential retirement outcome for members, employers are better able to understand where efforts can be effectively focused to improve these outcomes.

If you would like to learn more about how we can support you with the strategic oversight of your outsourced DC pension provision, please contact Gemma Burrows or your Willis Towers Watson consultant.

Gemma Burrows
Director, Retirement

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