The trend away from Defined Benefit (DB) to Defined Contribution (DC) pension provision continues, unabated.  

In recent years, many employers have favoured contract based DC plans for building future benefits, such as Self Invested Personal Pensions, Group Personal Pensions or Stakeholder arrangements. The absence of governance requirements and the ability of providers to undertake the bulk of the administration and member communications (within a fee charged to members) have had considerable appeal to employers. However, most employees view contract based arrangements negatively.  

Employers may initially perceive contract based plans as easy and inexpensive to set up and run, as virtually all services are undertaken by the provider. Unfortunately, when difficulties are experienced (such as poor investment or administration), employers are unable to address the specific service issue in isolation with, typically, the only solution being to close the scheme and establish a new arrangement. This results in employees having a number of separate policies which they, and their employer, have to manage.  

The standardised nature of contract arrangements means that employers have little opportunity to tailor communications to their house-style and therefore struggle to project the appropriate employer image, or even that it is an employer sponsored plan.  

Whilst contract based plans may be seen as offering members significant flexibility, in reality few members possess the knowledge or confidence to make appropriate use of this flexibility. Research shows that the majority of members are both apprehensive and concerned about being left to make their own investment decisions, incurring additional expense either in the form of IFA fees or a lower retirement income due to inappropriate investment decisions.  

These worrying scenarios are occurring at a time when the Pensions Regulator (tPR) is seeking to improve governance within DC arrangements and is suggesting that they may require, in the foreseeable future, companies to establish Governance Committees, similar to Trustee Boards. The increasing uncertainty around pensions legislation reform in 2012 and the inherent limitations of NEST (Personal Accounts) are also raising concerns for employers.