Case Studies
Case Study 1
The issue
Our client operates an occupational DC arrangement. It also operates a closed defined benefit (DB/Final Salary) scheme. The DC arrangement now has around 1,500 members – more than the DB arrangement. The DC scheme’s assets are valued at around £25 million. In the eyes of most employees, the DC scheme is the company’s main pension scheme. In order to reflect that status, the trustees were keen to adopt best practice in all areas of DC governance.
The aim
By adopting best practice governance, the trustees wanted to ensure that the scheme became a leading DC arrangement. This would enable members of the scheme to benefit from an improved scheme, and for the employer to benefit from a workforce that understood the value of a good quality pension scheme.
The approach
The trustees adopted a comprehensive approach to governance. A governance plan was decided upon and put in place, setting out objectives and key performance indicators for the scheme. A governance year planner was developed to set out the regular events required to manage the scheme and the key information required. The governance plan was developed during a period of significant legislative change, which resulted in the number of trustee meetings increasing in the short term from four a year, to double that amount.
Risk management is high on the trustees’ agenda. The rigorous approach to risk management ensures there is little opportunity for operational inefficiencies, with regular appraisal of the scheme’s service providers.
The result
As a result of adopting a governance plan, the trustees have much greater clarity and focus in the management of their DC scheme. An early advance in the investment approach was a renegotiation of investment charges, for the benefit of members. The initial range of passively managed funds has been supplemented by a complementary set of actively managed funds. The trustees have adopted ‘white labelling’ of funds in all cases to simplify understanding and to allow them to change the underlying asset managers. The structured approach to governance enables the trustees to monitor the basic scheme operation effectively, permitting more time to consider how best to engage with members.
Case study 2
The issue
Our client operates a scheme with both DB and DC sections. There was a growing recognition within the trustee body that DC was receiving far less trustee attention than DB, because DB issues required a great deal of time. At the same time, the number of active DC members was steadily increasing, while active DB membership was decreasing. A decision was taken to establish a DC Committee, to take ownership of all DC related issues, including both the DC section and additional voluntary contributions (AVCs).
The aim
By establishing a committee to deal solely with DC issues, the trustees wanted to take a proactive governance stance to improve the various DC aspects of the scheme. Of particular interest were the investment options available to members. The trustees wanted to simplify the fund options offered to members and at the same time to enhance the quality of all the investment managers by selecting on a ‘best in class’ basis.
The approach
The funds available through the DC section were reviewed. It was decided that all the funds should be generically named or ‘white labelled’ funds, with managers selected on a best in class basis and accessed through a single investment gateway. As the investment gateway can offer funds from a large number of managers, it is relatively straightforward for assets to be transferred from one manager to another when the need arises. White labelling permits the trustees to change the underlying manager of the assets without needing to change the name of the fund, or needing to inform the members in advance of every fund management change. In this way, the trustees can ensure that members always have access to well regarded fund management and can also avoid the build up of legacy funds.
The result
The introduction of a DC Committee provided the necessary focus and resource to the management and development of the DC section – a matter of concern to the trustees.
In light of changes to the DC section fund range, the DB section AVC fund options are now being similarly consolidated. The 150 or so options are being slimmed down to the same 10 funds that are available to members of the DC section, plus lifecycle and flexicycle options. The employer is so keen to endorse the new approach that it is offering members a modest incentive to transfer their existing AVC assets to the new options. The ultimate aim is to have a single well-governed range of generically named DC funds.
Case study 3
The issue
Our client is an investment management company and operates a DC scheme. A large fund range was available and the complexity was perplexing to many of its members.
The aim
The trustees recognised that the range of funds available to members was larger than desirable and the amount of choice was proving difficult for many members. There were also some internal issues over conflicts of interest between the need to offer members good quality funds and the desire to offer the company’s own investment products. The employer was understandably keen for its funds to feature in its pension scheme, and it was felt that members would similarly question the use of investment funds from competitors.
The approach
The trustees decided to operate a governance process, enabling them to slim down the range of funds and demonstrate why the resulting funds were used. In order to address some of the conflict issues, a white labelling approach was used. This would allow in-house funds to be used where appropriate, but for any absence of in-house funds to be both justifiable (and perhaps less evident) to the company’s workforce.
The result
A reduced, but more focused, range of white labelled funds has been agreed upon. The new range of funds and the reasons behind the changes have been communicated to members and have been well received.
Case study 4
The issue
Our client operates a major occupational DC scheme. Following a governance review, it became apparent that the trustees could use the scheme’s considerable funds to make the investment process more efficient.
The aim
The trustees recognised that they were in a much better position than members to select between different investment managers. They wanted to provide members with access to managers that were likely to outperform. Equally, the trustees did not want to burden members with the need to regularly switch assets from manager to manager, or to choose from a selection of active managers. The option of operating white labelled funds was therefore very appealing.
The approach
The trustees liked the idea of white labelled funds being managed on a single investment gateway, which means that it is relatively straightforward and quick for assets to be transferred from one manager to another when the need arises, as well as minimising the out of market risks that might otherwise be associated with switches between managers. Because of the size of assets under management, the trustees wanted to use multiple managers within each white labelled fund.
The intention in using multiple managers was to select managers with complementary investment styles, to reduce the manager risk that might otherwise exist. In some instances, as many as 4 managers have been appointed to manage part of the assets of each white labelled fund.
The result
A range of white labelled funds is now in place and has been communicated to members. The new approach to investment will be kept under close review to ensure that the desired outperformance is delivered.
Case study 5
The issue
Our client is a UK manufacturing company which was acquired by a US multinational. The UK company has about 250 employees and has always prided itself on the quality of its benefit arrangements.
The aim
The UK company had participated in an occupational scheme which included both DB and DC sections. The new US parent wanted to establish a group personal pension (GPP).
The approach
At the inception of the GPP, the company set up a monitoring committee to ensure an appropriate level of management for the plan. The committee included key company people and member representation.
The committee meets quarterly and has written terms of reference to ensure that it does not inadvertently begin to take on quasi-trustee powers and responsibilities. Instead its remit is to make suggestions to the company where appropriate. The committee has also produced a year planner so that each meeting looks at a series of agreed items in order to give it focus.
For each meeting the GPP provider produces a report showing how many members are in the plan, average contribution rates, the fund choices being made and a snapshot of the funds’ performance. The provider is also invited to attend periodically. Watson Wyatt also provides, at least annually, an independent assessment of the provider’s overall performance (both investment and administration) as well as its continued suitability.
The result
Establishing the committee has given a real and practical focus to ensuring the new GPP is working effectively. The committee has already been able to intervene successfully to improve the effectiveness of the plan in a number of ways.
- Following some issues over the accuracy of the first set of benefit statements, a pre meeting is now arranged with the provider to plan the annual statement production effectively.
- The provider undertakes member presentations and one-to-one sessions at the time the benefit statements are issued in order to raise awareness and understanding of pensions.
- The provider undertakes member presentations and one-to-one sessions at the time the benefit statements are issued in order to raise awareness and understanding of pensions.
The provider undertakes member presentations and one-to-one sessions at the time the benefit statements are issued in order to raise awareness and understanding of pensions.
