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Employers should rethink DC pension scheme design

Employers should re-evaluate their approach to default design for DC pension schemes, to ensure that they are helping members retire comfortably, according to BlackRock

BlackRock found in its latest DC Pulse Survey that four in five (81%) pension savers trust their employer to choose good investments for them; a significant group considering the vast majority (92%) of members are invested in default schemes.

Almost three-quarters (72%) of respondents said their employer should assume responsibility for selecting pension investments on their behalf, partly because of their complexity.

While 85% believe they should make more of an effort to understand the investments in their own pension, 77% said they are not confident enough in their knowledge to manage their savings themselves.

The vast majority (79%) said they are indifferent to where their pensions are invested so long as they deliver a reasonable return. Investment returns came out as the main priority for DC members (37%), above costs and charges (11%) and increasing company contributions (21%).

Commenting on the survey findings, Claire Felgate, UK head of DC investment at BlackRock, said that employers should prioritise investment design for pensions.

“Pensions are complex and the default is a good solution to take some of the big investment decisions off the member. Even though no default will provide the perfect strategy for every individual, poorly-considered ones can increase the potential for employees to undershoot their desired outcomes,” she said.

“While it’s tough to address all elements of scheme design – from investments, to administration, to communications – with the number of members in the default, investment design is key to achieving a comfortable retirement for members.”

Felgate advised those responsible to ask themselves a series of questions on pension investments.

“I would urge those responsible for investing members’ retirement savings to consider the investment design of the default. Are there clear investment objectives for members at different stages of their journey to retirement? Are these being implemented in a cost-effective manner to deliver the expected results? All of these questions should be considered,” she added.

BlackRock’s annual DC Pulse Survey polled 1,000 UK working adults aged 25 to 69 with at least one workplace DC pension during July 2018. The survey is designed to understand how DC members interact with their pension scheme, their views on retirement, and what would encourage them to engage and save more with their pension.