“DC transitions require a significantly higher degree of project management and a lot more pre-planning,” says John Finch, director at JLT Employee Benefits. “Once the necessary permissions and records are in place a blackout period would have to be imposed to stop members doing anything during the transition period that might result in administrative changes. That means putting a halt on members’ ability to make daily changes and potentially pausing any lifestyle adaptations to underlying funds.”
As such, the scheme administrator has a very important role to play and needs to be fully involved in the process.
“We’ve seen transitions go wrong because the administrator has not been as involved as they should,” Finch reports. “DC schemes need to work out every step of a transition in advance, react to minimise out-of-market risk and get records straight. Once the transition is done, that must then be fed back into the administrator which has to then cascade down to reconcile all of the details at the member level. That is a lot more work, which is potentially more expensive, versus transitioning within a DB structure.”
Unitisation is not only an administrative challenge, however. Preparing for a transition also presents a considerably greater communications challenge for DC schemes, not just in ensuring all members’ consents and records are up-to-date, but to ensure they understand the process and its implications.
“Communication is vital,” according to Towers Watson senior investment consultant, Nico Aspinall. “The main priority needs to be ensuring members understand what is going on and, if they need to make a decision, that they are given time to make it.”
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