LawDeb Pensions, the investment trust for over 200 pension schemes, has revealed that the pensions sector is changing as 80 per cent of businesses look to change their approach from a defined contribution (DC) scheme to something else as they pursue greater value for money and improve governance.
The research, conducted by Censuswide on behalf of LawDeb, surveyed 150 finance decision makers in the UK who have input on their company’s defined benefit (DB) pension scheme; 57 per cent of whom have DC schemes. It showed that in the next five years, businesses are turning their attention to moving towards consolidation and specialised management.
Nearly two-thirds (63 per cent) of these businesses expect to transition to either a master trust (41 per cent) or their own trust (22 per cent). Only 16 per cent foresee a move to a group personal pension (GPP), and a mere one per cent are considering a return to a DB scheme. Despite the strong impetus for change, one in five (20 per cent) businesses indicate they will maintain their current arrangements.
Elizabeth Hartree, trustee director and head of defined contribution at LawDeb Pensions, commented: “Our research highlights the proactive steps many UK businesses are currently taking to enhance their DC offerings and better serve their members’ needs.”
Motivating change
The finding from LawDeb Pensions also reveals what is driving this change in attitude. The need for strong and robust management was listed as the primary reason by 41 per cent of firms, as they cited they were looking to make changes to ensure a higher quality of governance. However, the main motivator for change was value for money. Fifty per cent of firms said that by transitioning, they would secure improved value.
Other notable factors influencing these decisions include cost (34 per cent), the pursuit of best practice (33 per cent), the range of investment options (28 per cent), and the quality of member communications (28 per cent). Government policy, such as the Mansion House reform, is also impacting 26 per cent of businesses – highlighting the broader economic and political influences on pension planning. Inertia may also be in play for 20 per cent of businesses, who attribute their current provision to being what they’re familiar with.
Hartree continued: “On top of this, firms are having to navigate an increasingly complex financial and regulatory landscape. Upcoming changes, such as the Pensions Schemes Bill and measures to introduce Targeted Support, will have a seismic effect on the DC market; and while it could deliver positive, member-focused outcomes, it will require serious consideration from any business with a DC arrangement. It’s clear that businesses are already anticipating widespread changes, but trustees must also ensure that they focus on delivering improved outcomes in the face of a rapidly changing market.”
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