DC beyond COVID-19 – the show must go on
7th May, 2020
The initial impact on DC schemes of COVID-19 is similar to any other economic upheaval; crisis management, surviving the here and now, and the longer-term recovery plan.
For now, employers need to continue with their auto-enrolment and re-enrolment duties, whether staff are still working or being furloughed as part of the Coronavirus Job Retention Scheme (CJRS). However, helpfully for CJRS staff, employers are also able to claim the employer pension contribution up to the statutory minimum employer pension contribution level. Also, TPR’s current pragmatic approach is welcomed, e.g. reduced application of the 60 day consultation requirement for employers with 50 or more employees considering amending their contribution levels.
Shaping the experience
When the assistance has been implemented and survival more assured, employers can begin to plan the recovery. Here it is important to remember that the actions taken will live long in the memory of employees and customers. Employee experience (EX) is shaped by defining moments and has a significant influence on the culture and core values of a business, e.g. will the employer make up for any reduction in contributions in future?
For DC pensions the fund value and investment are critical to any member’s retirement planning, where approximately 80% of members are invested in the default fund, generally invested in equities until lifestyling commences. (Two-thirds of the Master Trust and GPPs reported in Corporate Adviser Intelligence, April 2020, had 80% or more of their members invested or partially invested in their Default Funds). With the significant crash in equity markets suffered during February and March 2020, most members would have experienced a reduction in the value of their DC savings. History has indicated that there are three common investor responses: implement the “do nothing” strategy, flight to safety or invest additional money. However, most DC members consider themselves pension scheme members, not necessarily investors. I suspect that once the dust settles and we analyse what happened, the “do nothing” strategy will emerge as the likely response.
Rather than leaving it to the traditional annual benefit statement to update members, some effective communications could prove very valuable at this time. Messages need to be tailored; members with 30+ years to retirement will have different interests to members entering into the lifestyling phase or reaching their original planned retirement date. Employee communication is a positive EX driver as we head to whatever will become the new normal.
Time is arguably the most valuable commodity and right now, trustees, employers and governance committees currently have a unique opportunity with a captive audience (outside of the herculean efforts of our key workers). The main DC challenge has always been member engagement, where printed material quickly transforms into a coffee mat and on-line information and interactive tools typically require yet another forgotten password and user ID. However, with a captive audience, trustees, employers, and governance committees now have the opportunity to be remembered for doing the right things and many members appreciate information and proactive assistance in terms they will understand.
When members feel like their pension is Cash Trapped, their fund manager is the Weakest Link and their investment ideas seem a bit Blankety Blank, there may be a temptation to pick up the Remote Control. However, selecting an alternative can feel a bit like Take Your Pick. How plausible is it to Play Your Cards Right, catch a Big Break, hit the Bullseye and know when The Price is Right? It can be Pointless to Chase a Tenable market Tipping Point and DIY SOS is maybe not the solution to DC pension investment.
8 out of 10 members are invested in the default fund, which recently reduced in value but not as far as 15:1. While the world recovers from COVID-19 trustees want to reassure members that the trustees/employer /governance committee are all working with the provider and investment managers with Grand Designs to help members continue to Build the Dream towards their Place in The Sun.
That said, one piece of communication that we can all agree on: “Please always remember, tomorrow will be a good day.” – Colonel Tom Moore.