UK: DMGT Pensions DC scheme
Ten years after creating its first trust-based defined contribution (DC) pension scheme, Daily Mail & General Trust plc (DMGT) set up a contract-based DC plan in October 2007. It now has five contract DC plans, covering three divisions and two associated companies.
"We wanted to convert our trust-based DC plans into contract-based DC schemes in order to ease the governance burden and remove the need for trustees," says Jeremy Williams, pensions manager at the Daily Mail & General Trust. "However, we still undertake some governance via our six-head strong governance committee."
Contribution rates for the contract-based DC schemes fall into two bands: on starting employment the employer matches the employee contributions by 100% up to 6%; after 2-3 years of employment depending on the criteria set by each of the autonomously-run divisions - employees receive a 200% match subject to a maximum of 10% being paid by the company.
Around 80% of contract-based DC members currently contribute the amount required to receive the maximum company contribution.
The default fund is a traditional lifestyle fund with investments in global equities dominating up to 10 years from planned retirement, which are then switched to corporate bonds, index-linked funds and cash the closer a member is to retirement. The minimum age for retirement is set at 55 years.
However, members can opt out of the default fund and select from 13 fund options, half of which are index-tracker funds. Around 80% of members are currently invested in the default fund. The ones that choose one of the other funds tend to opt for the index-tracker funds.
"If we are going to introduce another fund option in the future, it will most likely be aimed at the emerging equity markets," says Williams. "But we may also look at target date funds or other types of funds that might be better at protecting members against economic downturns."
Upon retirement, accounts are used to buy an annuity with an insurance company, with DMGT Pensions playing an active role to ensure members get the best deal suitable to their needs.
Take-up of the DC plans varies between divisions from around 33% to over 90%. "In some divisions, auto-enrolment would increase contributions and the take-up rate," says Williams. "From 2012, we plan to replicate the NEST arrangement within our plans. This should cut down administration in payroll and probably reduce expenses for members, given that NEST in the early days is going to be relatively expensive.
"The big issue is trying to engage employees with pensions. However, everyone has to be realistic that there is a large portion of employees in the UK that need every penny they can get their hands on so it is unrealistic to expect them to save for their retirement, even if they would be benefiting from matching company contributions."