How will market uncertainty evolve defined contribution pensions?

We're delighted to also be joined today by Catherine Chamberlain, senior manager in the Rewards team at Coca-Cola Europacific Partners, and Lynn Barnett, head of Reward at the Bank C. Hoare & Co., who'll be sharing their direct experiences of addressing the key objectives for their organizations. But before we get started, I'd like to cover some basic housekeeping. Firstly, we have a Q&A feature, which you'll find to the right of your screen.

This is where you can ask us a question, which we'll look to answer at the end of the session. And you can also use this to contact us if you're experiencing any technical difficulties. And secondly, at the end of the webcast, you'll have the opportunity to fill out a short survey to let us know about your experience today, so we'd love if you can spare a few moments to complete this.

As well as hearing from our guest speakers today, we'll also be joined by my colleague Stuart Arnold, Helen Perrin, and Andy Hope for our panel discussion. Stuart, Helen, and Andy work with me in the retirement practice of our business and will be reflecting further on the results of our recent survey. So please do make use of the Q&A feature to ask any questions to them.

This year sees the 18th edition of our survey exploring trends in the DC market. As well as giving us fantastic insight, it also enables us to share these experiences and perspectives with you as sponsors and fiduciaries of DC pension plans. And we'd like to extend our thanks to all of those who took part and helped us to bring these valuable insights.

Organizations face numerous challenges. And over the last 12 months, the cost of living crisis and global economic pressures continue to impact on DC provision. We also see legislation playing a large part in influencing the direction of travel.

And with the recent Mansion House speech and release of several new consultations, schemes and scheme sponsors will be required to consider how they respond to any new legislation and the expectations arising from these. With these is context. I'm pleased to be able to share the results of our 2023 DC survey.

But before we go to look at the immediate focus for organizations and the priorities they've set themselves, one of the benefits of the long history we have of conducting this survey is the ability to identify trends and shift in focus over time, particularly over the last two years. What we can see from our results is the increase in visibility of pension benefits to support attraction and retention of talent is a key focus for organizations, with the importance of this going up by 10 points in the last year alone. Pension is a key benefit offered to employees by organizations and certainly one that can have a high associated spend.

For that reason alone, it's understandable to see why it's important to realize the value of this, but perhaps it goes further than this. Attracting and retaining talent from a labor market where individuals are scrutinizing the whole benefit package beyond just base pay is key. And organizations need to differentiate in order to achieve this.

Diversity, equity, and inclusion also remains an area of growing interest for organizations, with more companies stating this as a focus for their pension provision compared to last year. Whilst so far activity has been moderate, a lot is planned, with between 1/3 and 1/2 of companies expected to take significant steps to address this in the short term. This is a broad and complex issue, and companies are taking different steps and approaches on how to address DE&I across total reward packages.

Many are looking to address policy and pay, but there's a growing number of companies looking to address retirement gaps between different segments of the workforce. And activity looks set to increase from the 8% who have already taken action to 53% looking to address this within the next two years. And with the recent report from the DWP suggesting a gender pension gap of 35% in DC pensions, we welcome progress in this area.

We can also see that average member charges have fallen. The last decade has seen downward pressure on member fees as providers strive to secure business through the consolidation that's taken place and the move to master trust. Our survey data shows that member fees across master trust plans are now lower on average than when compared to contract-based and own trust plans, perhaps reflecting the appetite that now exists in the master trust market and the movement of assets.

And this is, of course, good news for members, who in turn have less deducted from their investments. But the question over the next few years is whether this remains sustainable as the government looks to make progress and open up opportunities for fiduciaries to invest in what have historically been more expensive asset classes, such as illiquids and unlisted shares. 1/2 of employers are looking to review their retirement support over the next two years, with 1 in 4 employers having already done so.

Access to drawdown-- that's the facility to allow variable income to be taken in retirement whilst your pension account remains invested-- is increasingly being made available and currently offered by 76% of DC schemes. Although this also means that one in four schemes don't provide access to a drawdown option either via the scheme or a third party. This means members will need to transfer eye to the scheme and find a personal pension plan if they want this option in retirement.

The implications of this could mean moving from a governed environment with the oversight of trustees to a retail product and differentials in fees and investment options. Whilst this number has declined from nearly 1/2 of employers in 2020, this does suggest there is still a gap, which is more likely to come into focus given the government's intention to look at providing support to members at the point of access and the proposals to place a requirement on trustees to offer a decumulation service that's consistent with pension freedoms.

Considering these shifts and this backdrop leads us on to the question of, what are the objectives and focus for organizations over the next two years? As we can see from this, enhancing employee experience is the top priority for organizations, with 79% giving this as their key focus. Employee experience covers a whole host of things and relies on making the most of all of the interactions an individual has with their retirement plan.

This means from the beginning when they're enrolled into the plan, during the time they're investing, including encouraging adequate savings, and up to the point when they consider how they'll access these savings as they transition into retirement, whatever that might look like for them. The interactions they will have include both the employer and the pension provider themselves. And thinking about how to truly partner with the provider to leverage capabilities is an opportunity to improve this without necessarily incurring additional cost.

Encouraging the individual to engage and make the most of the opportunities when they do is key. The second highest priority is improving support around financial well-being. This is given as a key priority for 68% of organizations and followed closely by improving retirement outcomes for employees at 65%.

These top three priorities are inherently interlinked and all centered around supporting the individual. There are lots of ways that organizations are approaching these challenges. And with this in mind, I'm delighted to introduce our first guest, Cath Chamberlain, who's been speaking with my colleague, Natasha Rogers, around how they're approaching their key objective of improving retirement outcome for employees.

NATASHA ROGERS: Hi, Cath. It's great to have you here. Thank you so much for joining us today and for sharing your thoughts on the importance of supporting your staff with gaining the best outcome from their pension savings, but also wider financial well-being. If you wouldn't mind introducing yourself and your role at Coca-Cola Europacific Partners, that would be great.

CATHERINE CHAMBERLAIN: Of course. Hello. My name is Cath Chamberlain, and I'm a senior manager in the Rewards team at CCEP, Coca-Cola Europacific Partners. I've responsibility for employee benefits in GB, and CCEP has circa 3,500 employees in GB.

NATASHA ROGERS: Perfect. Thanks, Cath. So I guess as we kick off, why is it important to CCEP to support staff in achieving good outcomes from their pension savings?

CATHERINE CHAMBERLAIN: Sure. So recruiting and retaining great people is at the heart of CCEP's business strategy, and helping colleagues save for their retirement is something that CCEP is committed to, hence a really competitive pension offering, which we want our people to really value. With that in mind, we strongly advocate the importance of saving into a pension. Although having said that, we know that our colleagues have other financial priorities, especially in light of the current cost of living crisis.

And so particularly in the last 12 months, we've introduced even more flexibility into our pension scheme design to enable, yes, our colleagues to save for retirement, but as well as taking care of their short, medium, to long-term financial priorities.

NATASHA ROGERS: It's great to see the flexibility you're offering so employees can manage their differing financial priorities. Now, the cost of living has certainly been a real issue over the past 12 months and continues to be. Has this had an impact on CCEP's focus on supporting staff?

CATHERINE CHAMBERLAIN: Most certainly, Tash. There is greater pressure on businesses just now, as I'm sure your listeners are aware, to provide pay increases reflecting the inflationary environment. Earlier in the year, CCEP gave particular consideration to the percentage increases given to lower paid employees, who are arguably most impacted by the cost of living crisis.

Plus also, as I mentioned previously, CCEP is really focused on creating flexibility in our pension scheme design. And colleagues can change their contribution level month by month, as well as choosing whether their bonus is pensionable or not.

NATASHA ROGERS: Thanks, Cath. And how has the cost of living impacted perhaps the wider benefits that are offered by CCEP?

CATHERINE CHAMBERLAIN: Yeah. No, good question, Tash. For sure, there's been more focus in recent months on discount providers. So we have a provider who gives our employees access to online or high street discounts.

We've changed that provider. Our new provider's platform is much more user friendly, and our colleagues can access online and high street discounts on their personal or work devices. We've also been working with our eye care voucher provider, flu voucher provider, electric car charging point provider, and others to ensure our employees realize the right benefits for them and their families at the right time.

Free mortgage advice is one such benefit. Financial planning for retirement is another. And then lastly, as you're very aware, we're working just now on a Financial Well-Being Week in mid-September.

Topics during this week will include raising children in a recession, eating well, spending less, mortgages for first-time buyers, and an A-to-Z tour of our pension scheme microsite. So we're constantly thinking about how to educate and engage our colleagues so that they feel equipped to tackle the financial decisions when they arise.

NATASHA ROGERS: Wow, thanks, Cath. I mean, it's really clear to see that there's been a lot you've been doing to support employees through this period. I'm wondering if you could provide a bit of information as to how what you're doing integrates into the pension arrangement in terms of helping employees save for retirement, but also improving those member outcomes over the coming years.

CATHERINE CHAMBERLAIN: Another great question, Tash. Look, financial well-being has never been such a priority as it is at present. Financial uncertainty and the cost of living crisis has increasingly been cited by our well-being first aiders as a topic of conversations with colleagues.

Pension scheme investments right here, right now are a particularly challenging topic. So making sure that the strategy is right for the long term has been key, as well as helping colleagues understand and be as comfortable as they possibly can be with short-term fluctuations, always keeping in mind the long-term goal. We also have in place a Governance Committee.

So although we're part of a master trust arrangement, which is overseen by professional trustees, we also have in place an internal group, a Governance Committee, which meet to discuss and oversee our DC pension arrangement on a regular basis. This committee are tasked with looking at all areas of the DC pension offering to ensure that members are provided with the best value. Recent topics discussed by this group have included member communications and education, the investment strategy, and the provider market.

This committee used research. For example, this survey, commissioned by WTW, has provided insight into what other companies and organizations are doing creatively, as well as normally in the DC pension space. And this has allowed us to revisit, review, and enhance our contribution design, as well as introduce some of the flexibility that I've also mentioned.

NATASHA ROGERS: That's great. Thanks, Cath. And I guess staying on the theme of providing good member outcomes, do you monitor and measure the effectiveness of the strategies that you put in place?

CATHERINE CHAMBERLAIN: Oh, most certainly. It's essential to measure the outcome of any intervention to ensure that the time, the resources, and the effort put into this important benefit are being-- oh, sorry-- as effective as possible. In April of this year, our partner, WTW, undertook a review of our membership against the PLSA standards, the retirement living standards.

And as part of this work, the different groups of our workforce were considered to identify if there were any groups that particularly needed focus and support, e.g., males versus females and/or different groups with different salaries. We know our membership isn't a one-size-fits-all. And therefore, we wanted to segment the analysis to ensure that the pension offering suited all of our membership.

This analysis enabled us to develop more targeted communications and campaigns. We ran, gosh, back in September, October a campaign encouraging members to increase their contributions. These communications were targeted. They were targeted by member age, as well as member salary profile.

We've also plans to engage our membership on the default investment strategy and when and how self-selecting an investment strategy might be relevant. Ahead of this, we'll monitor member behavior. And after the campaign, we'll monitor member participation, again, to ensure and understand whether our messages are having the intended impact.

NATASHA ROGERS: That was really insightful. Thank you so much, Cath, for taking the time to talk to us today.

CATHERINE CHAMBERLAIN: My pleasure, Tash. Thank you for having me.

GEMMA BURROWS: Thanks, Cath and Tash. It's great to hear those perspectives and what CCEP are doing to address member outcomes and the tangible steps being taken to move the dial on this. It also supports the importance of recruitment and retention and looking at benefits holistically, which gives me a great opportunity to introduce our second interview with Lynn Barnett, who's head of Reward at C. Hoare & Co., to talk us through how they're addressing financial well-being, which is cited as the second highest ranking priority in our survey.

STUART ARNOLD: Hi, Lynn. Thank you very much for joining us today and agreeing to talk through a little bit about what financial well-being means to C. Hoare & Co. or the bank is pretty cool for short today. And just to start things off, it'd be really helpful if you could introduce yourself and your role with the bank.

LYNN BARNETT: Yeah. So hi, Stuart. My name is Lynn Barnett. I'm head of reward at C. Hoare & Co. I've been at the bank for just under nine years now. And obviously, in that time, I've seen quite a few changes, both internally and externally, to the market and within the bank. But yeah, these last few years have been quite substantial with the changes that we've made. Yeah.

STUART ARNOLD: Fantastic. Great. And it sounds like from all our discussions that financial well-being is something that's really important to the bank. And can you tell me a little bit about why it's important, what makes it such a key part of your employee strategy?

LYNN BARNETT: Mm. Well, I think like most employers, over the last few years, there was a lot of focus on emotional and mental well-being obviously with the pandemic, et cetera. And financial well-being was always on my agenda. But what does that mean?

It means so many different things to different people, and different people at different stages of their career or different personal circumstances that as the employer, we have no idea what that means for them. So it was something that was very much on the agenda. And I think the changes and the challenges that we saw in '21, '22 with the cost of living crisis really brought it to the fore and put more of a focus on how we could support financial well-being in different ways for our colleagues.

And of course, as we know, one size does not fit all. And one of the things that as an employer and as a bank we have always been keen to do is to make sure that we don't categorize and we don't define different categories of colleagues to be in receipt of different support. So it is something that we needed to know could support everybody.

STUART ARNOLD: And how has that difference in needs across your workforce influenced how you've offered financial well-being and support to your employees?

LYNN BARNETT: Yeah. So I think, as I said, financial well-being does mean different things to different people. Obviously, we've got colleagues who were still living at home with parents or may have just got a new property or were flatsharing in London, et cetera, because we are a London-based firm. But we did a number of things in '22 to support colleagues in real time and have a real impact.

And the first of those was actually, we advanced our annual pay review by six months. And when the CEO mentioned this to me, I think I turned gray overnight.

STUART ARNOLD: I guess with all that support, it helps-- obviously, one of the main things we're talking about today is pensions, and it really helps people to maintain their pension and not have to make difficult choices.

LYNN BARNETT: Absolutely. And, I mean, as an employer, we have an amazing pension scheme. It's a non-contributory scheme. And I also introduced probably about five years ago now the opportunity for colleagues to take the chance to flex down some of that pension contribution and take it as cash.

And because of the support that we gave last year, we saw more colleagues choosing to stop that cash and take more as their pension. And we saw fewer colleagues choose to opt in and do that as well, which, again, was a real positive for me seeing people more engaged in their pensions.

STUART ARNOLD: With, I guess, greater flexibility with what people can do with their finances comes, I guess, a bit of a need for extra support. Have you provided guidance and coaching to people? And how's that worked?

LYNN BARNETT: As a bank and a financial services company, people often think, oh, well, everyone will know what they need to do, but of course, they don't. And we made a conscious decision not to pay for advice for colleagues, but we do give access to guidance and access to financial coaching. So they appear in three different ways.

One is access to our pension provider's seminars that they do. So we will host them either internally face to face as we can now or available online. So those support colleagues through the different stages of their career, such as an early career, how to value your pension, how it works, what it means saving to it, and hopefully appreciate our valuable non-contributory scheme.

It also supports those towards the end of their career with retirement guidance and support as well. And one of the things that I was most proud of, I think, last year was implementing the financial coaching support that we did, again, through a third-party provider. Those coaching sessions really ask the individual what their goals are, what they're trying to achieve.

Are they trying to get on the mortgage ladder? Are they saving for a child to go to university, for example? Are they saving to retire early if they want to do that?

So we provide and we pay for support for one year of coaching, which gives the individuals access to four to six sessions across the year with goals and plans and how to try and get out of debt for example, clear those credit cards. And again, those have been really well received and well utilized.

STUART ARNOLD: Brilliant. I guess that leads neatly on to my next question, was how has all this been received and valued by your staff? Has there been beat-back in action?

LYNN BARNETT: It has. I mean, I've had a lot of positive feedback. I think it's like all of these things. We don't want people to take it for granted because I do believe we offer a lot to support our colleagues.

I mean, we had our last employee survey. Our NPS score was plus 55, which was pretty unheard of, I think, in financial services or most companies. But I think that engagement and well-being is a major focus for us at the bank.

And we don't just speak it. We mean it. And our purpose of doing that and being not only good bankers, but good citizens and a good employer really does have impact. And we really mean it.

STUART ARNOLD: Yeah, no, I think a lot of financial well-being conversations have always stemmed from most pensions being a really important bit. But, as you say, it's so much broader than that these days. I guess it's all very intertwined as well, isn't it?

LYNN BARNETT: Very much so. And I think it's a real challenge for all employers because you don't know what an individual circumstances are. We see what we pay somebody, of course, and we see what they choose to do either with their pension savings or with taking elections on flexible benefits, for example.

But you don't know what's happening at home. And that support, we can only do our best and hope that it works for everybody because, as I said right at the beginning, what does financial well-being mean? It means different things to everybody.

So hopefully, with the work that myself and the team have done in the last year or so, 18 months, has made a real difference to how we support people. And again, our pension scheme is amazing. It's a really good non-contributory scheme.

We have a DC governance group that is supported by one of our partners and obviously yourselves at Willis Towers Watson. And we do look at it. We look at how it's performing.

We understand how our default scheme is running because it's an expensive scheme for the bank to provide. But we want it there for a reason, to provide colleagues with a decent pension pot at the end of their career.

STUART ARNOLD: Fantastic. Well, I just need to say thank you very much for your time, Lynn. That's been really--

LYNN BARNETT: You're very welcome.

STUART ARNOLD: --really helpful.

LYNN BARNETT: Thank you.

GEMMA BURROWS: Thank you so much to Lynn and Stuart for taking the time to share those insights with us. It's great to hear from two organizations to bring these priorities to life. What I'd like to do now is turn to our panel discussion and welcome Helen Perrin, Andy Hope, and Stuart Arnold in person this time to reflect some more on the results from our survey. I'd also like to remind the audience that you're able to submit questions to our panel by using the Q&A function. And so we'll try to get to as many of these as possible.

The first topic I'd like to look at is investments and charges. So, Andy, within DC schemes, the charges that members are paying are driven by the investment strategy. And, as we've mentioned, there's been a downward pressure on these over recent years. Is this sustainable if investment strategies are to include alternative assets, such as illiquids, going forward? And should we be focusing on price?

ANDY HOPE: Thanks, Gemma. So I think first of all-- I think let's start with the positive aspects-- is that clearly, introduction of the charge cap, focus on cost transparency, and clearly the highly competitive consolidation market has driven trustees and employers to be focusing rightly on driving cost down for members, and that's paying dividends. At the moment, we're seeing really material reductions in charges. So 10% over the last four years is a real positive for the industry.

We have seen in our survey responses, again, some hesitancy for reducing and for increasing member charges going forward to allow for things like, as you said, greater diversification in terms of accessing illiquid investments or enhancing focus on ESG. So I think let's take ESG first. I think there may be some reluctance to increase charges for ESG maybe down to the fact that the majority of schemes we found already completed a lot of the work to integrate these factors into their investment designs, with the majority of schemes already integrating ESG into the default, to some degree.

So the respondents may feel that an increase in cost in this area isn't particularly necessary at the current time. Looking forward, we've got-- clearly, as you mentioned, the Mansion House speech demonstrates the government's desire to change the direction of travel and refocus the industry on member outcomes rather than just explicit charges. And they've been obviously clearly very open about outlining the potential upside of integrating illiquid investments.

But clearly, we've also had the value for members' drive and the outcome from the regulators. And FCA joint consultation acknowledges that charges only form a small part of the equation. We can't lose sight of investment returns and our schemes missing out on opportunities from not being able to access the full range of investment options, but also all the other things that the speakers have been talking about today in terms of communications, retirement support, and good quality administration and what they play in terms of delivering good value.

So I think overall, I think we really do need to potentially have a shift away from focusing just on absolute charges and moving towards member outcomes. And part of that is allowing us to have a sustainable market where we're able to build in future innovations, whether that's illiquids or other investment options.

GEMMA BURROWS: Thanks, Andy. And perhaps staying on the theme of investments, our survey suggests that bespoke investment strategies, so those that are designed specifically for a scheme, are now less common than the provider off-the-shelf default investment strategies. Is this a good thing?

ANDY HOPE: So I think this is one of those questions where I'll sit on the fence a little bit. I think it's positive in the sense that we've seen that providers' default designs have been-- over time, they're able to take account of some of the latest investment ideas, again, coming back to integrating ESG factors, commitments around net zero, and again, coming back to the Mansion House, the commitments that the providers have made around including exposure to unlisted equities.

Providers clearly have the scale to be able to take account of these asset types and overcome some fairly material operational considerations, particularly around illiquids. So sponsors get the benefit of the providers' access to these asset types, but also from the oversight that the master trust governance framework also delivers. But the counter-argument to the move towards off the shelf is that clearly, those off-the-shelf designs need to be made appropriate for a very wide range of members, particularly in terms of different investment objectives.

And so from a bespoke design, this is where they can have their place, allowing trustees and sponsors to design a default that is specifically aimed at their membership, perhaps taking more risk in the growth phase or arguably, potentially even more importantly, is making sure that the default will target an outcome which reflects how most members are likely to take their benefits. I think what this last year has shown is if their members' investments are misaligned with how they intend to take their benefits, it can have a significant detrimental effect.

So I think overall, it's positive that we have a range of investment designs that can suit each sponsor's circumstances, be it that be the off-the-shelf design or, again, something bespoke, which is more tailored towards the membership.

GEMMA BURROWS: Thanks, Andy. And a question that feels particularly relevant given the government's recent response to the consultation around helping members understand choices at retirement, one of the proposals is whether schemes or trustees should be mandated to provide members with access to guidance or advice at retirement. Helen, do you think mandating this would be a positive step?

HELEN PERRIN: Yes. I guess in a word, yes. We submitted our response to the Mansion House proposals earlier this week, and we were very supportive of that suggestion. I think it is such a difficult decision for individuals and such a key decision at the point of retirement.

And there is still a lot of confusion both about the options available and how to actually implement your choice. So we focus a lot in the industry around the options and understanding those options and solutions. But actually, the how is just important to the members.

So often, we'll go into a guidance session, and somebody will say, I'm invested in the drawdown lifecycle fund. I'm all set. I'm going to move automatically into income drawdown. And we have to take a step back and say, well, no, you've chosen your investment strategy for your accumulation phase-- not in that language, obviously.

You've chosen your investment strategy as you're building up benefits. Now, you've got to make that final decision around what you want to do with your-- or how you want to receive your pension income. And actually, in terms of doing that, let's talk about your retirement goals and plans.

Even in the Mansion House proposal, some of the questions are very much focused on the outcomes and the solutions in terms of-- there was a suggestion that should we be asking members to only want a regular income? Do you only want flexible access to your pension benefits?

But actually, our feedback on that is that the language is still very much focused on the outcome. And in a guidance session, we'd be asking, what are you going to do for the first few years of retirement? Have you had any history of long-term care in your family and how have people met that? To focus on all of the considerations, but in a language that individuals understand.

And then if drawdown is the right solution for that individual, or one of the right solutions-- I'm really keen that we encourage that mix and match approach-- it's really difficult for that individual to then choose the right income drawdown provider for them if there isn't that scheme-facilitated drawdown. There's no user-friendly comparison tool for drawdown in the same way as there might be for annuities.

So I think we don't have to spend huge amounts of money on advice to support individuals. But I think if we can get facilitated drawdown annuity broking coupled with guidance at the point of retirement, that's going to have a real impact on member outcomes.

GEMMA BURROWS: Thanks very much, Helen, for that. I'm just seeing we've had a question in as well. And we know that the DC markets and the move to master trust is continuing but perhaps slowing down. Stuart, do you see a continued move to master trust for all the largest DC trust-based arrangements?

STUART ARNOLD: I think it's an interesting question. I think we're in an interesting time for consolidation. I think we can see consolidation of the market for own trusts. Master trust is still a big focus of the regulator and making sure that those that do stick with their own trusts are doing it and doing it right.

We do still see in the survey that 41% of those with own trusts are still considering whether to go to master trusts, but that's a lower proportion than we've seen in previous years. So there is some sign of that move to master trusts slowing down. I guess we mentioned in the question scale being quite a big factor when looking at sticking with own trusts.

But I think what we're at now is a position where those that are still in own trusts often fall into one of two categories. The first is those that have committed to offering an own trust and really value that benefit for them and for their staff and being able to really bespoke the pension scheme to work for them. Often, that does lend itself towards larger employers with the scale to do that.

But we're certainly not seeing it being restricted to large employers. I mean, there's still plenty of smaller schemes where the trustees and the sponsor are very committed to running that own trust scheme. And so I think there will be commitment to the own trust market from large and small employers where they've got that right ethos.

And on consolidation, more broadly, I think there's also a second group of own trusts here, one that probably keeps the regulator up at night a little bit where they are maybe still not got the governance structure and oversight in place that they should do. And I think for that group, some of them may not yet have really even considered master trusts fully. So I think that's the group that the regulators are probably going to be focusing on, and we're going to still see quite a lot of continued movement towards master trusts.

So to answer the main question, I do see own trusts having a place in the market, not just restricted to large employers. But there's still going to be quite a lot move to master trusts in the coming years, I think.

ANDY HOPE: And just to add to that, Stuart, as well, I think there is an emerging potentially third group. And obviously, what we saw at the back end of last year was a huge change in the way that the markets were moving when we've had interest rates picking up. What it's ended up in a position is that some of the DB schemes have being much better funded than they otherwise would have been.

Some schemes have been able to lock in some of those surpluses. And they're now in a position where they're thinking, well, how do we effectively manage that surplus? And one of the considerations that some schemes are certainly having is around, can we funnel that surplus into a DC? Can we uplift some DC benefits? Because clearly, employers are conscious of the tax implications of refunding some of that surplus back to them.

But I think there's going to be a really interesting dynamic. And we may even see some schemes thinking about new DC sections and certainly working collaboratively with the trustees. So that's certainly a new interesting dynamic.

STUART ARNOLD: That's a good point. Thanks, Andy.

GEMMA BURROWS: Thanks. And perhaps similar to that theme as well, we know that one of the reasons organizations want to move from own trust to master trust is these prescribed governance responsibilities. But what we have seen in our survey is that even where that move has taken place, employers and sponsors still want to maintain oversight of that DC plan? And, Stuart, there's clearly a lot of activity in this area. Why do you think this is so important? And how can this oversight be done effectively?

STUART ARNOLD: Yeah. I think it is a really important area. And I think both Lynn and Catherine in their interviews have mentioned how important this is to their organizations looking after the pension scheme, even though some of the oversight is delegated to a master trust board or to an independent governance committee. I think over the last couple of years, we've seen a bit of a resurgence in oversight of pension schemes.

And I think this is caused by a mixture of coming back out of the pandemic, where we've had lots of other pressures on our time, but also just a bit of turmoil in the market, I guess one of the key themes of this year's survey, with investments and with the cost of living crisis, just meaning that keeping a very close eye on pensions has become very, very important to a lot of employers and to their employees. And so I think this oversight has been a real common trend in the last 18 months to 2 years.

And I think the reason why it's valuable is, yes, the master trustee board or the IGC will look after the scheme as a whole, but having your own governance framework allows you to hone in on, what does that mean to you as an organization? What do you need to think about to make sure you're achieving your objectives as an employer and supporting your employees? So that real strategic thinking, as well as that is it providing a good pension scheme question.

I think how do we do that effectively is a really good question because I think those governance committees having power and oversight to look after the pension scheme, they don't often quite have as much decision-making power, particularly around the outsourced pension scheme. So it's quite important to make sure you've got a structure in place that is effective. I think there's three key tips to having an effective governance committee.

I think one is have a really clear purpose, know what your goals are for your organization, and make sure that that's at the heart of the discussions you're having to drive things forward. Two, I think, is the format of those meetings or the frequency of those meetings. What we find with pension scheme trustee boards is they'll meet quarterly, and that will give them momentum to have effective actions between meetings.

And so I think governance committees can learn quite a bit from that as well and that frequency of meeting driving good action. And I think the last one to mention, and this came up again in Cath's discussion earlier, is just around making sure you've got independent and impartial expert support to the governance committee so you can really get under the bonnet of your pension scheme so you can challenge the pension provider when needed. And that, I think, is something that we've seen quite a lot recently as well, particularly around investment and investment performance.

It's been such a tough time in investment markets. Being able to have someone like us help an employer to understand that and challenge their pension provider has been really valuable.

GEMMA BURROWS: Yeah, thanks, Stuart. And Cath mentioned using those governance committees as an opportunity to assess the impact they're making on the interventions as well. So I guess a perfect opportunity to use those sorts of forums for that purpose. There's clearly a lot of value in the oversight that can be brought by these committees.

And one of the other areas that we've seen a growing interest in is diversity, equity, and inclusion. We are expecting a lot of activity over the coming couple of years. Helen, what would you recommend employers consider as first steps here?

HELEN PERRIN: It's a hard area to address because of the broad nature and the interaction with other things, such as policy and pay and even that wider government policy. But I think at an organizational level, I think probably the first step is quite simple in terms of collating and understanding your data, so both your scheme data and your organization-wide data. So Cath mentioned earlier, at CCEP, they segmented data by groups, so male and female and earnings, for example.

And there are other groups you can focus on too, for example, different ethnic groups, age. And I think by segmenting into different groups that you're focusing on, you can better understand the outcomes for those different groups and the extent of any gaps, and plus give some thought to the potential underlying causes of those gaps. And that will hopefully help you identify which areas to focus on and consider some of the practical steps that you could take to address that.

That might feed into pension design. For example, if you've got lower earners paying less in and receiving less from the employer in matching contributions, or even reward policies. so, for example, how do pension contributions work during parental leave? And I guess you could also consider targeted education sessions.

So we've seen, particularly in the last year or so, the demand for specific gender pension gap workshops increase, sometimes targeted at women's networks, but quite often targeted at the whole workforce, not just women, to help all employees focus on some of the practical steps they can either take to improve their own position or potentially to support a lower-earning or part-time working spouse or partner, for example.

So some of those ideas will be specific to the gender pension gap. So we might focus on approaching family budgets in a slightly more equitable way to make sure independent pension provision is made for each partner in a relationship, for example. Do you each put into a household budget and allocate equally between you, especially if one partner is taking on more of a carer role?

And there's tips we can give around, how do you make sure you get your maximum state pension benefits? And how do you do things tax efficiently? So there are some tips that we can provide on specific key issues that are relevant to various different groups.

But I think as a wider point, by doing a targeted education session for a particular network, it's giving that safe space to explore and share ideas on, what barriers are there to longer-term savings? And how can we approach those? And also, that's really useful, I think, from an organization perspective to feed back into future strategy as well.

GEMMA BURROWS: Thank you, Helen. We've also had a question in around there being some debates that illiquids will impact on investments and lead to greater member engagement. This is clearly a value over and above financial returns. Any thoughts on this?

ANDY HOPE: I can pick that one up. So yeah. So we've had a number of different schemes who've been surveying the membership, particularly around sustainable investments, around ESG, getting member views about whether these factors are important to membership. And actually, we found really positive results both in terms of the proportion of people responding-- so really good response rates.

Pension engagement isn't always easy, but it seems to be a topic which is clearly close to a lot of people's hearts. And we tend to get good split of the membership across both active deferred membership and different age categories. And we found quite a positive response in terms of both questions, things like, if we invest in a more responsible way, a sustainable way, would you contribute more into your pension? And that's been responded positively.

Would you even potentially work longer to be invested in sustainable investments? And again, some of those metrics have come back really positively. So I do think that people are becoming more aware investors, for sure.

And I think it's a good opportunity for all sponsors to be using this as an opportunity to be feeding back to membership, and even then being able to form it part of your strategy in terms of engaging with members, having more transparency around net zero around, what are we doing with your money?

And clearly, we've seen industry approaches, like Make My Money Matter, making waves and really connecting the dots between individuals and how their money is being invested. So short answer, yes, I think it's a real positive. And I think there's a real opportunities there for engagement.

GEMMA BURROWS: Thanks, Andy. Perhaps sticking to some of the broader themes now as well, flexibility does seem like an obvious way to address a lot of the key areas that we've been thinking about. And indeed, Cath mentioned those in her interview.

Usually, when we think about flexibility within a pension, it's when you have some sort of alternative savings vehicle alongside that pension. Stuart, employers do seem to be offering this to employees that are perhaps impacted by the pension taxation issues. Should we be looking to extend out this sort of provision?

STUART ARNOLD: Yeah. I think it's a really interesting topic and one that's probably been debated quite a lot in recent years. And so we've heard from both Cath and Lynn about the flexibility they've built into their organizations and how that flexibility has been valued by staff. So there's certainly a real strong support from both Cath and Lynn for this.

And I think giving people the option to use some of that pension contribution above the automatic enrollment minimums to redirect to alternative savings or potentially even cash can be particularly valuable, particularly at the minute with the cost of living crisis. I think giving people that support to be able to build up a buffer in their finances or to be able to get on the housing ladder or save for a rental deposit is so valuable at the moment that it can only be a good thing.

And I think over the long term, it can support people to save more into their pensions because they'll be able to have more financial reassurance over their position and their ability to save into the pension scheme. So I think the flexibility is a great idea and is really valuable. And I guess the one area that needs to go hand in hand with that, though, is making sure employees have the support to make good decisions around their finances and make sure pensions aren't neglected. And, Helen, I know you've got some firsthand experience of helping employers with that education piece.

HELEN PERRIN: Yeah. I mean, I think increasingly, broader financial well-being is intertwined with the pension education as well. So as part of a purely pension webinar, we will automatically talk about cost of living and, how can you manage your day-to-day costs in order to then sustain your pension contributions? But I think, as you say, the two have to come hand in hand, and you have to understand your options and the implications of them.

So if you are trying to get on the housing ladder and you want to dedicate money to a short-term fund as a temporary measure, you have to understand, what's the longer-term implications for your pension? Will you have to work an extra couple of years at the end to top it up? And so I think it's a really welcome development that we are having more flexibility for diverse work groups, but it does need to come with education as well.

GEMMA BURROWS: Thanks. And actually, we've had another question around contributions. And for those people that are familiar with our survey, they'll know that we publish average contribution levels each year through this. Have we seen much change in the level of contributions that we've paid year on year?

STUART ARNOLD: I can pick that one up, Gemma. I think looking at the headline levels of contributions, there's not been a huge shift over the last few years in that area. But I think when you get under the bonnet and look into the data, what we're increasingly seeing is there is a bit of a divide in pension contributions provided by employers.

There is quite a significant group of employers that do automatic enrollment and end of the spectrum. And there's another significant number of employers that do quite generous end of the spectrum. And the averages that you see sit in the middle, but actually, there's not too many employers sat in that position. And I think what we're seeing increasingly where we're having conversations with our clients around recruitment, retention, and the value of pension benefits within the overall remuneration package is a move towards that higher end there.

And so although the actual averages aren't moving hugely, we are seeing a movement by really engaged employers putting in place more and more generous contribution structures. And I think what comes hand in hand with that is this key theme of flexibility we've spoken about. So we've spoken a bit about flexibility around redirecting some of those contributions, but just the slightly more old-fashioned matching contribution structure has become increasingly prevalent in recent years.

GEMMA BURROWS: Thanks, Stuart. And perhaps we are staying with you for this one, but there has been another question in. Are we seeing any appetite for auto escalation on DC contributions?

STUART ARNOLD: So for those in the audience who haven't come across this, auto escalation is essentially where as you move through your career, your contributions escalate with your salary as a percentage of your salary actually as your salary goes up. Are we seeing a big increase in this? So we are seeing it, and we are having quite a few conversations around it.

The number of employers who've actually put it in place and gone live with it still remains reasonably small. But it's certainly a topic that we've had lots of discussions over, and there's quite a number of employers very strongly thinking about it. I think the practicalities of putting it in place is often the challenge, unfortunately.

But for those who have put auto escalation in place where the percentage of your salary going into your pension automatically increases almost year on year, we have seen that it's had a positive impact. We have seen very low number of members pushing their contribution back down after the automatic escalation. So it can be a really powerful way of supporting staff and saving over the long term.

GEMMA BURROWS: Thanks, Stuart. And I guess what we do see in the survey is that most employers are automatically enrolling at the minimum level. And I guess certainly, where there's a contribution scale and more available from the employer, I guess that auto escalation really does benefit the employee there for making sure that they make the most out of those.

OK, I'm seeing that we're a couple of minutes before the end. Perhaps time for just one last quick question. Helen, we've talked a lot about financial well-being. What's been an effective approach to how companies are supporting staff in these areas?

HELEN PERRIN: So we've definitely seen an increase in focus on wider financial well-being throughout individuals' careers. I saw this question come in around financial wellness first aid as well, which is something we'll come back to you on separately. But I think that's a really good idea to have those people that you can go to with those first touches.

And I think what we've seen so far with employers is running education sessions, online tools, et cetera, to focus on some of those key topics. I think in our survey, things like debt management, budgeting, and saving for an emergency fund or house deposit are some of the key areas that employers are focusing on. And we've seen a number of ways of doing that, online tools, webinars, videos, coaching and guidance sessions, which Lynn touched on in her session.

And we've seen financial well-being helplines as well from some employers. Financial being first aid is having that immediate touchpoint to ask questions. But I think other organizations have also got internal people that are down as those first people to go to.

So I think it's a really welcome development that we are looking at diverse workforces and seeing what all of their financial needs are rather than just focusing on pension. But as I said earlier, I think we need to keep that longer-term savings goal in mind as well and make sure we're putting equal emphasis on everything and also educating people around the pros and cons and long-term implications.

GEMMA BURROWS: Thank you. Thank you, Helen. I know you slightly rushed at the end, and we're very keen to make sure we don't overrun for people. But that does bring us to the end of today's webcast.

Please don't forget to fill out our survey, which will appear on your screen and will just take a couple of moments. Thank you again to all our speakers. And thank you once again for joining us. And enjoy the rest of your day. Goodbye.

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