Close to a quarter of HR professionals (24 percent) do not know what type of workplace pension scheme their organisation offers, suggesting a lack of pension understanding and, potentially, a failure to meet current and future legal requirements.
This knowledge gap was revealed in results from the CIPD’s Labour Market Outlook (LMO) Winter 2024/25 survey of 2,019 HR professionals. (See below for more on types of pension schemes: ‘Know your DC and DB differences’).
Schemes that offer value for money are crucial as government figures show that in 2023 employers and employees put £131.8 billion into workplace pensions.
With so much money involved, HR and reward professionals have a key role in ensuring workplace pensions offer value.
While a significant proportion of HR were unsure about their scheme type, among those that knew their employer offered a defined contribution (DC) scheme, 67 percent said it did offer value for money. Only 6 percent said it didn’t, while 27 percent didn’t know.
However, just 44 percent of employers have reviewed their pension scheme’s ‘value for money’ in the past five years. Such a review would include examining the level of fees and charges, fund performance, the level of member support and retirement outcomes for savers. (For guidance on ‘How to conduct a value review’, see below).
Respondents from organisations that had conducted a pension review in the past five years were most likely to say their pension did offer value for money (82 percent). Those who had not conducted a review were most likely to say that they did not know (35 percent).
Charles Cotton, senior policy and practice adviser at the CIPD told Benefits Expert: “Given all the money being spent, I was surprised that so few workplaces had checked in the past five years whether their DC pensions schemes were delivering value for money. It makes you wonder whether many employers have reviewed their pension plan since they first had to comply with the automatic enrolment legislation.”
HR responsibility
This lack of understanding is a key issue for HR as further LMO data showed that in 68 percent of workplaces, HR and payroll teams are responsible for the DC plan. This means they make decisions about which scheme to use, automatically enrol eligible workers into the scheme, review fund and administration performance, deal with employee queries, and/or provide information to staff about the scheme.
The size of an employer is crucial to how workplace pensions are managed. CIPD research showed that HR and payroll are responsible in 79 percent of large firms (with 250 or more people), but only in 52 percent of SMEs (firms with fewer than 250 employees), while for micro-employers (with fewer than 10 workers) HR and payroll are only responsible for this work in 32 percent of firms. This is because micro-employers are less likely to have an HR and payroll person.
More regular reviews?
The government Pension Review is looking at ways to improve pension value and outcomes for employees. It has outlined a range of ways to do this in its consultation Pensions Investment Review: Unlocking the UK pensions market for growth. One option under consideration is to require all employers to regularly review whether the DC pension offers value for money, possibly as often as every five years.
Cotton said that given the government’s growth agenda, “it is likely it will eventually require all large employers to conduct such reviews over a five-year period”.
More than half (52 percent) of employers told the CIPD they thought that complying with this kind of requirement would be ‘easy’ (39 percent) or ‘very easy’ (13 percent). But three in ten (30 percent) thought that meeting such a requirement would be ‘difficult’ (21 percent) or ‘very difficult’ (9 percent). Another consultation option was that only large employers would conduct a value for money pension review.
The consultation also suggested a potential shift in responsibility. So rather than requiring workplaces to regularly review their DC scheme, the board would be given this responsibility. Under this option employers would be required to nominate an executive to be responsible for ensuring the workplace pension delivers good value retirement outcomes for staff.
A significant proportion (43 percent) of HR thought their organisation would support this option, with 20 percent suggesting their employer would oppose it. SMEs were less likely (35 percent) to support it than large employers (47 percent).
Overall, two fifths (40 percent) said their organisation would support requirements for more regular pension reviews, while 32 percent said their employer would support nominating an executive to be responsible for ensuring workplace pension value.
The CIPD emphasised that the financial wellbeing of staff is important to most HR and reward professionals. This is because it is the ‘right thing to do’ and because it brings business benefits such as lower levels of absenteeism and presenteeism.
The employer body advised that based on the results of its research, all large employers should check whether their DC pension arrangements deliver value for money at least once every five years.
Since most workplaces have assigned responsibility for pensions to HR and payroll teams, it makes sense to give them authority for this review, the employer body said.
It also said that while HR could either bring in internal or external expertise for the review, a suitably qualified HR professional should sign off on the results and the proposed actions.
The CIPD advocated for all firms to publish their DC information in their job adverts to help applicants understand which employers offer the better pension. This would also raise the profile of workplace pensions among job hunters, so organisations are more likely to see a return on what they are spending on their pensions. Publishing this data would also help improve all pensions offered and reduce the gender pension gap.
Know your DC and DB differences
The two main types of workplace pension schemes are defined contribution (DC) schemes and defined benefit (DB) schemes.
An employee’s retirement income from a DC scheme, also known as money purchase schemes, depends on several factors. These include stock market performance, the amount of money contributed to the scheme, and related charges and fees. DC schemes are either contract-based (provided by a third party) or trust-based (run by an employer through a trustee board). DC plans open to all employees are most common in the private sector.
DB schemes are less prevalent than in the past as they have been largely replaced by DC in the private sector. DB schemes open to all are most common in the public sector and can also be referred to as a career average or final salary scheme. An employee’s DB retirement income is effectively guaranteed by the employer.
Researchers asked respondents about the most commonly used schemes. More than half (52 percent) said they have a DC scheme and automatically enrol eligible workers, 12 percent have a DB scheme, while 24 percent admitted that they didn’t know what type of scheme their employer offered.
How to conduct a value review
CIPD guidance suggests that HR explores the following when conducting a pension value review.
- Member communication and support: assess the effectiveness of member communication and support services. Explore whether the provider offers clear and understandable information, educational resources and tools to help members make informed decisions.
- Fees and charges: evaluate the fee structure, including management fees, administration costs and any extra charges. Compare these fees to industry averages and consider their impact on members’ retirement savings over time.
- Fund performance: analyse the investment returns over several time periods, comparing them to relevant benchmarks and industry standards. Assess whether the returns are consistent, competitive, and aligned with members’ long-term retirement goals.
- Flexibility and choice: review the range of investment options on offer. Evaluate whether the plan offers diversified investment choices that suit different risk appetites and investment preferences. Consider whether it’s easy for members to switch investment options.
- Workplace impact: assess how the scheme is helping the organisation attract and retain staff in a competitive labour market and support the organisation’s brand and environmental, social and governance objectives. For example, what’s the awareness of the scheme and its features among workers, do they see it as generous, what changes would they like, etc?
Cotton added: “Other areas that HR teams can explore to see whether the plan is delivering value for money include: how the scheme is being governed; what retirement outcomes are being achieved; and how the plan compares to schemes offered by other providers through such measures as net promoter scores or scheme features.”
