What is the right DC scheme for you?

13 Dec 2021

The challenge

The sponsor had put in place a contract based scheme early in the 2000s, and had changed provider in 2007. As the scheme had grown and become the main scheme for employees, and the governance committee had taken a more active role in the scheme, it was becoming clear that the solution was not matching the needs of the sponsor nor the scheme members.

They had been speaking to existing advisers, that weren’t independent from a potential solution, and the advice they were getting would vary and was open to conflict. Should they stick with a contract based scheme as the right solution for the future, or should they consider switching to a Master Trust, or even setting up their own Trust based scheme on either a bundled or unbundled basis?

Muse was appointed to support the review as a result of our independence from the potential solutions – we were able to comment on the merits and drawbacks of each approach, as opposed to focusing on the one that allows us to recommend our own solution.

The approach

We suggested running a workshop that included both sponsor and governance committee representatives to consider the options available to them. In advance we shared key information about each of the options, as well as a number of questions for the attendees to consider. The aim was to capture and agree the objectives for the pension scheme. What would make the scheme a success for the sponsor, and what additional objectives would make the scheme successful from a member’s point of view?

The outcome

The workshop was a great opportunity for all parties to share their views and whilst, as always in these meetings, there were some disagreements, a common ground was found, and a set of objectives was agreed. Each of the options was considered against the objectives, and the conclusion as to the right type of arrangement was made.

Key learnings

  • Beware the conflicts of interest in the DC space. It is likely that at least one of your existing advisers can ‘take the problem away’, but if it is not the right solution, then your problems could multiply.
  • The differences between contract-based and trust-based schemes are diminishing. Governance requirements for contract-based schemes are rightly increasing, but they are also increasingly flexible, meaning the need to have an own-trust solution is reducing.
  • An agreed set of objectives that capture both the sponsor and member needs, can help direct you to the single solution that works best for all.