Time for SMEs to review their auto-enrolment investment strategies?
The recent auto-enrolment review by the Department for Work and Pensions covered most of the key issues facing workplace pensions. However, it did not talk a great deal about one of the major issues - the adequacy and suitability of the investments underpinning the provision of auto-enrolment schemes.
The Maintaining the Momentum report covered most of the key questions, including the issue of engagement, as well as the self-employed problem. It also looked at ways to create more flexibility in the workplace pension process as well as how to get even more workers saving for retirement.
It also pointed out that the annual benefit statements should aim to be both more explicit and engaging, so as to help savers understand what they have got in their pension now and to project what they can hopefully get in the future. However, it did not really look at the crucial issue of the investment strategies that underpin the workplace pensions themselves.
Auto-enrolment pensions are defined contribution schemes, so the risk is borne by the member not the scheme. This is why it is important that the investment strategy of the scheme - especially the default fund - is designed to be able to meet the needs of savers of all ages.
With more than 90% of members choosing to remain invested in their scheme's default fund, according to research by Hargreaves Lansdown, it demonstrates why the investment strategy and structure of the default fund is crucial.
As we pointed out in our article of October 2017 , two research surveys showed that millions of people in workplace pensions may not be getting the best deal from their default funds. The research pointed out that there is a great disparity between the best and worst performing default funds. Some funds may also not be diversified enough or properly geared up for any downturns.
Many of the largest auto-enrolment schemes are coming up for their three-year reviews, so now might be a good time for them to take a look at the investment choices they offer and the make-up of the default fund - to see if it is meeting the needs of its members.
If you are looking to review your auto-enrolment scheme - and in particular the investment strategies behind the pension scheme itself - contact Kellands Corporate today.