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Survey Report

Plan Design: The ongoing evolution of plan design and delivery of DC

Pension Board and Trustee Consulting|Pensions Corporate Consulting|Retirement
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August 31, 2019

Chapter one of the FTSE 350 DC Pension Survey 2019.

The desire of organisations to review their DC pension arrangements shows no signs of abating. In order of priority, across the FTSE 350 the areas that are planned to be reviewed in the next two years are: investment strategy, at retirement, delivery vehicle and contribution rates.

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Review of DC vehicle
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Review of Contributions
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Master Trusts gain ground

After a period of relative stability in contribution rates, 2019 has seen one of the largest increases for 10 years.

Rudi Smith
Director, DC Consulting Team

Organisations with contract-based arrangements are those most likely to be planning to review contributions, whereas trust-based plans are most likely to have already reviewed investments and be planning to review at-retirement provision. Employers with a master-trust have made recent changes in all areas except investment, reflecting that some leading master-trust providers are rapidly innovating in areas such as: retirement options and member support. Employers moving to master-trusts may also be taking the opportunity to review contribution design.

Relative to the 2018 survey results, the prevalence of master-trusts continues to increase. Interestingly, the proportion of master-trust in the FTSE 250 is stable, whereas it has increased in the FTSE 100. It is difficult to know the reason but this may be a result of a number of planned cases being in the implementation stage and not fully launched. Looking at the growth in master-trusts more generally, it may be the case that unquoted companies and non-UK headquartered organisations are leading the way. We may anticipate, therefore, that the FTSE 250 may start following this trend.

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Core contributions FTSE 100

Contribution rates on joining a pension scheme have increased materially across the FTSE 350 – with average employer rates increasing from 5.2% to 6.7% and employee rates from 2.4% to 3.0%.

This is probably a reaction to the final phase of auto-enrolment coming into force from April 2019 resulting in higher core contributions. For some employers, particularly in the FTSE 250, this has been off-set by a reduction in the matching opportunity available to members.

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Core contributions FTSE 250

The DC pension scheme can be the platform from which an employer can build out a broader Financial Wellbeing solution for its employees.”

Richard Sweetman
Senior Director, Financial Wellbeing Lead

One aspect of plan design that does seem to be gathering some momentum is allowing employees to divert some, or all, of their pension contributions, to alternative savings options. 22% of employers now allow this, although for the majority it is only for high earners affected by the annual allowance. A reasonable number (9%) have introduced this flexibility for the whole workforce.

DC remains the dominant pension provision for FTSE listed companies. Indeed, this now only leaves 34% of companies with defined benefit schemes that are open to at least some employees. The advent of Collective Defined Contribution (CDC) might offer an interesting alternative to traditional DB and DC for employers that want to provide benefits for a fixed cost. Willis Towers Watson has created a dedicated team of consultants to advise on this area, accessing the experience of helping to develop the UK’s first CDC scheme to be launched and engaging with Government over the new legislation.

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FTSE 350 pension contribution switch to alternative savings options

Next Chapter: The impact of the Corporate Governance Code on pensions for senior executives

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