If you were thinking of carrying out extensive improvements to your house would you defer to the original builder, or would you perhaps be better served to work with a specialist architect?
I live in a fairly old house in north London and it needs modernising and extensive improvements. Initially I had plans drawn up by my local builders and structural engineers, showing me the traditional means as to how to develop the space we had.
As my dad is a builder by trade I picked up the phone to him to discuss the options. Once he’d finished his usual banter about how terrible I am at DIY we got down to throwing around some ideas. What he said to me really struck home – whilst the plans were likely to be approved by the local planning office and they’d meet my basic needs for additional space and possibly increase my house’s value, none of the designs really worked as well as they could do.
So, on my dad’s advice I ended up hiring a specialist architect to take another look. The end result was the creation of significantly more space, using ideas that quite frankly no one else had thought of and at the same time, achieving the added bonus of improving my overall experience of living within the whole building. What’s more they also had greater knowledge of the exact requirements of the local planning officer so they could provide more assurance that the project would gain planning approval!
So, what did I learn from this?
It pays to use specific expertise.
Most people providing services in an industry know the rules but how to express yourself within the rules is likely to provide a better outcome.
You gain a fresh perspective on what might be achievable by engaging with specialists.
Just because something is workable doesn’t mean it’s the best utilisation of funds and resources.
It struck me that this is something that has always worried me about Defined Contribution (DC) Occupational Schemes. The history of such schemes is that they were often set up off the back of the closure of a Defined Benefit (DB) pension scheme or in response to a change in the law. Like some of the questionable extensions I see on my neighbours’ houses, they were often tacked onto the side of what’s there, using much of the same set up without making sure this was the best use of resources for a different type of pension arrangement.
Much like the first set of builders I had in, who were undoubtedly experts in their own field, actuaries and final salary scheme consultants weren’t always using DC expertise to design the right Scheme for the future that made the most of the resources available.
DC pension schemes are a very different product to DB pension schemes and the industry’s standards are very quickly waking up to this. Fundamentally, the savings outcome in the distant future provided by a DC pension arrangement is determined by the here and now, and the risk of a poor outcome is held by the pension scheme member so doing the same old thing that was done with an old final salary pension scheme won’t work.
So if, like many Trustees and employers, you’re looking to renovate your pension scheme, where do experts make a difference?
Historically, a lot of pension schemes have used the same funds for both final salary and DC investments. But the needs of a big pooled final salary fund compared to the needs of an individual member can differ hugely! Selecting the right funds for DC investors can help build improved pots for retirement and make sure the right level of risk is taken.
This is by far the biggest difference in the modern pension scheme and where the communication approach and style for DB arrangements may not meet the needs of DC savers. In a DB pension scheme, communication is rightly around making sure a member is aware they have a safe, secure benefit and how to draw it. However, a DC member must take control of their benefits from day one. This means that DC communications must be engaging, educational, interactive and most importantly facilitate decision making from the individual. This can be done through modern channels and media formats so that it meets the needs of all members regardless of age, gender or social background.
DB pension schemes need accurate records in order to inform the member of what benefits they have. Meanwhile, in addition to simply having accurate records, DC savings need two-way interaction between a member’s records and the member. The processes for updating contributions, payments, investment choice, retirement dates etc. need to be easy to engage the masses.
So – is it time to ditch the original builders and get an architect in? I would say now more than ever is the right time to get a DC expert in to look at your DC arrangement, to make sure:
• It meets the ever-increasing standards from The Pensions Regulator
• It meets the needs of your pension scheme members
• It makes the most use of the resources available to you
• It is accessible and engaging regardless of the journey time to retirement
Get in touch if you’d like to discuss your occupational pension arrangement and give it a no-strings attached high level check-up.
At Punter Southall Aspire we’re passionate about helping scheme members achieve the best outcomes they can, so we can take a look at your scheme and discuss whether any renovations can be carried out to make it better for Trustees, sponsoring employers and the members.