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CBI on DB and DC

The CBI’s 2013 Pensions Survey, a View from the Top, couldn’t be more timely really. The first year of automatic enrolment and big employers are largely done; the second year and smaller employers ahead. The survey covers all sizes of employer with all shapes of pensions at all different stages of implementing automatic enrolment.

If you’re advising corporate clients, that feels like it’s worth a read.

Some of the key headlines are around the impact of DB liabilities, but another important theme for me is employer attitudes toward DC provision. I’ve heard a number of people say that the move from DB to DC correlates with a complete shift from employer to employee responsibility and risk. There is some truth in that, clearly, but we also see some very encouraging signs that employers take their DC responsibilities very seriously indeed.

  1. 94% of businesses said they have or will have a DC scheme that they will use for automatic enrolment

  2. Of those, 89% said their pension scheme would play a role in attracting and retaining talent

  3. Two thirds are concerned that employees are failing to take full advantage of their scheme – either through maximising the employer contributions or simply opting out

The point I’m making is employers seem to be genuinely concerned about how their employees will benefit from their pension scheme. If we then see a corresponding engagement from employees on how much is paid in – i.e. gain a reference point of what a ‘good contribution rate’ looks like – then we’ll see them being a little more discerning about the quality of the pension scheme on offer when they look to start a new job.

I’m not suggesting people will choose an employer simply based upon the attractiveness of the pension scheme, but it might become a more meaningful question in interviews if people start to understand the difference between a good quality scheme and one that simply meets minimum compliance.

At the moment, many say that the low opt out rates reported – less than 10% so far – simply reflect people’s inaction through apathy. Maybe, and maybe therefore they are disengaged. On any engagement spectrum I’ve seen, there’s a step before that; active disengagement. If they were actively disengaged then they’d have opted out.

I’m an optimist and I view that as progress. How can we build on it in 2014 as we move on to help smaller employers?

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