Colleagues in the wider pension industry equate the public sector with defined benefit (DB) schemes and are often surprised when I talk about the work we’ve recently done on our defined contribution (DC) schemes and the value that those schemes provide for our members through added flexibility and choice. So I’m particularly pleased to be involved in this DC focused edition of Pensions Aspects magazine.
We established a DC Additional Voluntary Contribution scheme in 1988 to help members save more for retirement and added a stakeholder arrangement in 2002. This secondary scheme was intended to help those who for personal reasons, perhaps financial hardship during a divorce, wished to opt-out of their defined benefit scheme. After opting-out they can join Partnership and employers will continue to contribute on their behalf but they do not have to contribute themselves. They can then opt back into the DB scheme when they are in a position to do so.
The DC market has changed markedly since 2002 with the introduction of auto-enrolment, master trusts, pension flexibilities, and digital platforms, so we took the opportunity to review our provision in 2016 and reaffirm our commitment to DC. We chose to go further too, seeking to deliver better value for members, improve access to flexibilities and reduce administration costs by initiating a DC transformation programme. Where we had a mix of statutory and contract schemes delivered by four providers we now have a single master trust arrangement with Legal & General.
This change has allowed us to give our members access to the full range of pension freedoms, which complements their DB provision and provides additional flexibility. Particularly notable are the availability of a flexible or temporary income via income drawdown or the option to take lump sum payments on an ad-hoc basis.
Alongside improving access to pension flexibilities we also considered the support provided to members when they are considering taking benefits to ensure that they understand what the options mean for them, particularly drawdown, which demands continued engagement with investments. I was therefore pleased to see the FCA publish the outcome of the retirement outcome review on 30th July, which confirms their intent to:
• Introduce ‘investment pathways’ for consumers entering drawdown without taking advice
• Ensure that consumers entering drawdown only invest mainly in cash if they take an active decision to do so
• Require firms to send annual information on all the costs and charges paid over the previous year to consumers who have accessed their pension.
I can see this will enhance the value of the flexible benefit options whilst minimising potential pitfalls.
Historically our DB and DC worlds didn’t meet and DC was seen as the second class citizen. Perhaps in a world where jobs were for life and salaries increased progressively with age and experience that was the case but in the modern world any individual is likely to build up a portfolio of pension plans including DB and DC products. We have learnt a great deal during our DC transition, lessons that we are applying across all our schemes.
It’s time to breakdown the silos and address common issues in making pensions accessible, engaging members, protecting the vulnerable, supporting diversity, ensuring effective governance and providing products that meet the needs of members throughout their lives.
The featured articles in this edition (September Pensions Aspects) address many of these points and I hope will help you develop your thinking whatever your scheme type.
Chief Operating Officer, Civil Service HR – Cabinet Office