Sections

Only 4% of UK employers plan to use NEST, says Towers Watson

Related images

  • Only 4% of UK employers plan to use NEST, says Towers Watson

UK - More than two-thirds of employers plan to use their existing defined contribution (DC) plans to automatically enrol their employees, according to a survey by consultancy Towers Watson.

The National Employment Savings Trust (NEST), meanwhile, is being largely ignored, with only 4% of employers definitely planning to use it as their core pension vehicle for automatic enrolment purposes.

The Towers Watson DC Governance survey 2012 also shows an increase in the focus on investment issues by UK DC plans compared with the last survey in 2009, both in terms of the design of the fund range and default strategies.

Nick Cook, senior consultant at Towers Watson, said: "The research shows us that the large majority of fiduciaries want to actively help employees get the most from their plan and have focused much more on investment options and default investment strategies over the last few years.

"The default option is where most DC members end up, so this focus on default design can add appreciable value to employees' standard of living in retirement."

Alongside the increased focus on investment matters, fiduciaries also admitted that they generally did not understand the needs and wants of their DC members - only a third felt their plan's investment fund range was tailored to their specific membership.

This is particularly evident among contract-based plans, where it is still common to offer members a choice of more than 50 investment funds.

Cook added: "It is questionable as to how effective the increased focus on investment has been if fiduciaries are still not clear on what their members' value and require.

"It is also debatable whether the particular needs and wants of DC members are ever really met or justified by simply offering a huge number of investment funds."

The survey also explored the barriers to better DC governance and found that fiduciaries see these are being a lack of time and the fact that the competing demands of defined benefit (DB) schemes still crowd out the focus on DC.

The latter point was also found to be the case for contract-based plans where there is no direct link between an employer's DB and DC arrangements.

Towers Watson suggests that such pressures on fiduciaries will only worsen with the influx of new members as a result of automatic enrolment and the continued closure of DB arrangements - which still require ongoing oversight, even when closed.

Cook said: "While employers and fiduciaries appear to favour their existing DC plans to automatically enrol employees, they should not be complacent about the challenges they will continue to face, as the hurdles to good governance of DC pension plans remain high.

"If these governance challenges are not tackled head-on, existing DC plans run the risk of becoming the poor relation in the DC world, especially as the demands on DC governance are likely to continue to grow at a faster rate than the resources available."

More than 90% of the surveyed contract-based schemes and 89% of the surveyed trust-based schemes believe that governance structures will grow stronger over the next five years.

However, less than half (45%) of trust-based schemes said the introduction of compulsory auto-enrolment would lead to a fundamental improvement in the governance of DC plans, compared with 68% of contract-based schemes.

With automatic enrolment starting later on this year, the Department for Work and Pensions has estimated that, over the next five years, 5m-8m employees are expected to start saving or to save more in workplace pensions.

In total, 145 fiduciaries of DC pension plans in the UK were surveyed.

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2467

    Asset class: Search for a broker (mainly ETFs).
    Asset region: Global.
    Size: 250m.
    Closing date: 2018-08-28.

  • DS-2468

    Closing date: 2018-08-24.

Begin Your Search Here