Some employers are failing to check whether their workplace pension scheme still offers good value for employees, research has found.
One in six (16 per cent) businesses said they had never reviewed their workplace pension scheme, according to a survey of 500 UK HR decision makers by specialist insurance broker Everywhen.
Of those surveyed, 11 per cent said they had never carried out a review, while 5 per cent did not know when their scheme was last assessed.
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Katie Elliott, director at consultancy HR Katie, said pension schemes can be “set up once” by employers to meet legal requirements, only for them to be “forgotten” afterwards.
This problem, which is especially prevalent in small businesses, occurs when pension administration is sat with an external entity such as an accountant or broker, rather than being “owned internally”, she added.
“If there’s no one clearly responsible for it, it drifts. It’s rarely deliberate neglect, it [pension administration] is just not urgent until it is,” Elliott warned.
A lack of knowledge and skills among employers, particularly those dealing directly with pension providers, can sometimes also contribute to schemes going unchecked, said James Biggs, partner at consultancy Employee Benefits Collective.
“The employer may have also grown to a size where the original pension is no longer competitive or the right fit,” he explained.
Outdated schemes carry risks
Failing to regularly review pension arrangements could carry risks, said Elliott. “The biggest risk is that employees end up in a scheme that’s quietly underperforming, whether that’s high charges, poor fund choices or weak member support, and nobody notices until it’s a real problem,” she added.
“Pension is part of your reward package. If you’re not checking it still stacks up, you could be paying for a benefit that isn’t actually landing as one.”
The research also found employers consider a range of factors when choosing a pension scheme. Brand reputation and costs and charges were the biggest influences, each cited by 31 per cent, followed by ease of set up and ongoing management at 27 per cent.
Investment options and payroll or HR integration were each cited by 23 per cent, while 22 per cent considered employee experience, including user-friendly apps and communications.
Sorangi Shah, client director at Everywhen, said it was “very positive” that employers were “not basing their pension decisions on costs alone”.
Helping employees assess pension value
However, separate Aegon research found that just over half (55 per cent) of employees felt their annual statement actually helped them understand retirement savings.
This can create challenges for HR, which needs to ensure employees understand and engage with their pension, according to Sarah Moyo, people and communications director at Thalia Waste Management.
Moyo warned that if employees “don’t understand its value”, employers’ investment in contributions may not translate into “an effective employee benefit”.
To gauge employee engagement, she advised HR teams to examine “participation levels, opt outs, contribution rates and employee feedback” to assess whether their pension was “genuinely working as a benefit”.
Elliott recommended starting by asking providers for their “charges, fund performance and the support available to members”, before benchmarking these against other schemes.
But she stressed that reviews should go beyond costs and consider the wider support available to employees: “Do they run financial wellbeing sessions or one to one guidance calls? Is there access to retirement planning tools or support for people approaching retirement who need to understand their options?”
Elliott added that some providers included these services as standard but employers “don’t ask, so they never get used”.
“If you’re paying into a scheme, you should be getting the most out of it for your people, not just the minimum required to stay compliant,” she said.
For further guidance on workplace pensions, read the CIPD’s factsheet