As technology advances, so too does the sophistication applied to pensions saving. Sebastian Cheek considers the role administration will play in improving contribution levels in DC.
“What members notice most is not necessarily poor investment performance, but the fact that something has gone wrong in their account, their payment wasn’t done properly or when they are trying to get through to a call centre and they don’t get a good answer.”
Emma Douglas, LGIM
Successful defined contribution (DC) schemes tick three boxes: good investment, good communications and good administration. Most people tend to focus on the sexier and more interesting parts of this three-legged stool – investment and communications – when in actual fact, it is the quality of administration that can make or break a scheme.
Getting investment and communication right is, of course, integral to a scheme’s success, especially as the vast majority of DC members end up in the default fund – 92% according to the Pensions and Lifetime Savings Association’s (PLSA) latest annual survey.
But a scheme might have superb investments and a top-notch communications strategy, yet without solid administration underpinning it all there is a high risk its members will be left disappointed in retirement.
FIRST IMPRESSIONS LAST
“What members notice most is not necessarily poor investment performance, but the fact that something has gone wrong in their account, their payment wasn’t done properly or when they are trying to get through to a call centre and they don’t get a good answer,” says Legal and General Investment Management (LGIM) head of DC, Emma Douglas. “[Admin] is your first impression of a DC scheme, more than a glossy brochure or ‘here is your investment fund’.”
Good admin is crucial from two viewpoints. Firstly, it can facilitate the smooth transition of funds and contributions between employers, providers and members, automatically and swiftly via straight through processing. This is particularly necessary given the daily-priced nature of DC schemes in the UK and since freedom and choice introduced more options at retirement for members.
