LONDON, July 14, 2022 – Improving employee financial wellbeing support over the next two years, through enhanced communication, education and decision-making support, has become a major focus for over four-in-five (83%) UK employers. Similarly, 82% are also focused on enhancing employees’ experience of their DC savings plan, through better communication and technology, according to WTW’s 2022 Defined Contribution and Savings Survey.
The research shows that, as part of this shift, the number of organisations with a formal financial wellbeing strategy in place, connected programmes, a consistent brand and an effective communication strategy, is expected to rise dramatically: from 17% today to over 9 in 10 (94%) within the next two years.
Saving for retirement is the main priority for most financial wellbeing strategies (82%), but many are also looking to address other areas, including budgeting, spending and debt (48%), short term emergency savings (29%) and saving for house purchase deposits (23%).
A small proportion of employers (11%) are even allowing employees to use their employer pension contributions for other financial priorities, with nearly a further quarter (22%) planning to introduce this flexibility in the next two years.
Gemma Burrows, director in Willis Towers Watson’s Retirement business, said: “In recent years we have seen employers take a much broader view of their employee experience and financial wellbeing strategy. Employers are acutely aware of the current cost-of-living crisis facing employees and many are adapting the way in which they offer benefits to introduce new flexibilities in order to address this.
“In recent years we have seen employers take a much broader view of their employee experience and financial wellbeing strategy.”
Gemma Burrows | WTW
“Contribution flexibility was once viewed solely as a mechanism to mitigate the impact of the Annual Allowance for higher earners but increasingly employers are looking at providing flexibility to employees and offering saving options, such as ISAs, that may be more relevant to individuals in the short and medium term.”
According to the study, the number of FTSE 350 DC schemes that have incorporated ESG factors into their default investment funds has increased by half again since last year. Over four-in-10 (43%) DC schemes have now adopted ESG investing factors into their defaults, up from 30% last year and 17% in 2020. This is set to increase to over half (56%) of DC schemes, which plan to incorporate ESG in the next two years.
Master trusts are leading the way on ESG with two-thirds (66%) having already incorporated ESG factors into their default funds, a figure set to increase to four-in-five (80%) within two years.
“ESG continues to gain significant focus across all DC scheme types and within two years it is expected that more than half of schemes will have taken the step of integrating ESG into the default strategy,” said Burrows. “As well as aligning with corporate beliefs for many companies, ESG is also being seen as an important factor in engaging members in their retirement savings.
Own trust DC schemes are still the most likely to move to a master trust (55%) compared to just a quarter (24%) of contract-based schemes in the next two years. The secondary master trust market – those early master trust adopters that are now looking to switch provider – remains stable at 12%. Overall, just over a third (36%) of employers are planning to review their existing DC plan arrangement or provider in the next two years, whether that is currently own trust, contract based, or master trust.
Burrows said: “Cost and the increasing governance requirements are likely to be the key considerations for employers with own trust schemes. For many employers the cost of running an own trust scheme is increasing as regulatory requirements become more complex and master trusts can relieve some of this cost and governance for employers. Whereas for companies operating contract-based schemes, the cost and governance has already been outsourced and so the decision to move to a master trust is more likely to be based around whether they think their provision can be improved upon by reviewing and using an alternative.”
The study found that employers using outsourced pension providers (master trust or contract-based) are increasingly focussed on the oversight of these schemes and the member experience. Over three-quarters (78%) of employers have put in place a voluntary DC Governance Committee, with a further 8% planning to establish one in the next two years. Member engagement and value for members are two of the highest priorities for these committees with nearly two-thirds (62%) having undertaken a review of the scheme’s performance against objectives. And over half (56%) have assessed value for money for members.
“As providers have consolidated and master trusts have taken on more employers, many employers have realised that they cannot rely on these out-sourced governance structures alone. Employers are choosing to put in place additional oversight frameworks that focus on the areas they believe are more relevant to their objectives in providing a valuable employee benefit."
The WTW Defined Contribution and Savings Survey 2022 covers 233 eligible companies in the FTSE 100 and 250 indices, and 86 non-FTSE listed companies. Excluded from the study are investment trusts and overseas firms that form part of the index but do not have a material workforce in the UK.
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