Admittedly, not the most inspiring title for a post - but one that’s long overdue.
Given that pensions are notoriously opaque, even for those blessed with some knowledge, we thought it would be worthwhile to start from the beginning. What does ‘pension consulting’ actually mean?
Pension consulting – a comparison
A pension is a long-term savings product manufactured by a pension provider. Businesses choose pensions for their employees or people can choose one for themselves.
But how does a company or an individual know which is the right pension for their circumstances? Well, let me relate it to something we’re doing at home, which is building an extension at the back of our house. We knew what we wanted, and we knew how much we wanted to spend but we had no idea how we could achieve it so we turned to an architect.
As we went through the planning process with her it struck me that it was similar to the process my colleagues go through with our clients.
Rather than telling us what we should have, she listened to what we needed from the new space we want to create and helped us make some informed and useful decisions.
It was clear that she was on our side and wanted to help us achieve our goal within the limitations of our budget and the timescale we’d set. I came to realise that she had become our ‘trusted advisor’ and that we had confidence that she was working for us.
So, you could view pension consultants as the financial services equivalent of an architect. Like an architect, they know their field of expertise and what products and features are available and will be the best fit for you and, on the basis of a trusted relationship, can shape them to your needs.
Your company pension scheme can be designed better to reflect the characteristics of your workforce: their age, income, attitudes and ambition.
Your pension consultant does this by means of a thorough, time-consuming process that is taken off your hands, thus saving you valuable time.
These are the pensions we work with. Unlike final salary, also known as defined benefit, pensions, the employer is not responsible for what workers ultimately end up saving, it’s on them. But this doesn’t mean there isn’t a part you can play in helping them reach their goals. That’s where we come in.
Sounds important – you’ll hear it a lot: what does it mean? It’s basically the framework of agreed principles that dictates how a pension scheme is managed. And how it interacts with decisions made by The Pensions Regulator and how changes in the law affect the fund. This is central to a well-run pension scheme.
How does your scheme compare against others for returns on investment? How much does it cost? Does it provide access to investments you may want to offer your members? What kind of services are included?
The first question should be: where do you start? We can help find answers.
Very broadly, this looks at what funds your pension scheme invests in, the level of risk they take, what returns (profits) they make and – very importantly – what the funds charge for doing so. This can be complicated and hard to understand and we’re often asked to step in to assess how it affects your individual scheme.
The DC Default Fund Strategy
This is where pension members are placed by the scheme if they don’t express a preference: they delegate the decision to someone else. The DC Default Fund Strategy should be appropriate for the needs of the members who are likely to be enrolled into it.
When trustees or pension managers communicate in the right way with the people on whose behalf they work - the scheme’s members - it can have a real impact on, ultimately, the outcomes for members’ retirement savings.
The industry calls it “member engagement” which, we think, sounds a bit baffling. It’s about finding a way for people to be more involved and interested in how they can live the way they want to when they no longer want to, or cannot, work.
This is just a snapshot of some of the key aspects of managing a company pension scheme. As consultants, our input can be the difference in ensuring you choose the pension home best suited to your people.