‘Obstacles’ for moving a DC pension scheme provider are myths that can be debunked

Widely held beliefs about the obstacles of moving a DC pension scheme to a new provider are ‘mythical’ barriers and can be simply debunked, claims Hymans Robertson in a new paper Debunking the myths of moving pension arrangements. The paper looks at three common misconceptions: that providers all offer the same thing, that once a scheme is in a master trust or contract-based arrangement it doesn’t need to change again, and finally, that it is really complex and time consuming to change providers, and challenges each of them. The leading pensions and financial services consultancy says that these should not be barriers. Instead, it’s good practice for employers to review their provider every three years and be open to change. This will make sure what the provider offers continues to align with their objectives and best meet the needs of their members. Changing provider, in some cases, may be the best option.

Commenting on how the view that all providers offer the same thing is a misconception, Rachel Haggarty, DC Plan Effectiveness Consultant, Hymans Robertson says:

“When it comes to choosing a pension provider, many schemes mistakenly think that they all offer the same thing. However, providers all have something different to offer. Beyond the need for master trust and contract-based arrangements to meet regulatory requirements, it’s very much down to the provider to set a strategy about how it will offer value for members. This could be done through the use of targeted communications and technology to drive member engagement or the design of their default investment strategy. It could also be through the access members have to advice and guidance in the lead up to retirement. These can all differ quite significantly between providers.

“Providers are also continually developing what they offer to stay competitive, which helps drive innovation and competitive pricing. This gives great opportunities for employers with DC schemes that are aware of the changing market to choose a provider that will be the best for its members.”

Explaining why being in a master trust or contract-based arrangement doesn’t mean never changing pension provider again, Rachel continues:

“Since auto-enrolment was introduced, many employers have set up DC schemes in contract-based or master trust arrangements. But many have not reviewed the arrangement for a number of years and checked that it still delivers value. Once a scheme has moved into a master trust, it isn’t ‘job done’. Both the master trust and contract-based markets have changed a lot in this time, and providers are constantly developing what they offer in a continually evolving pensions market.

“In recent years we’ve already seen many schemes move from being within a contract-based arrangement to be within a master trust arrangement. Whilst master trust to master trust moves have not been commonplace in the pensions market yet, we expect this to change in the next few years. It may well be the right thing for the DC scheme to move providers.”

Adding that it is a myth that it’s really time consuming and complex to change to a new pension arrangement, Rachel says:

“There’s a misconception that changing pension provider will be complex and time consuming. But this isn’t true. Changing pension providers can take as little as three months and not more than nine months, and the heavy lifting for setting up the new arrangement within payroll is done mainly by the provider. One of the key parts to changing to a new pension arrangement is communicating and, in some instances, consulting on the change to a scheme’s members. Providers will often support on these communications to members. They’ll work with employers to develop a communications strategy that dovetails with wider corporate communications. If an employer is considering other changes within its business, such as changes to the workforce, a new pension scheme design or a new payroll system, then it might be efficient to consider whether a change of pension provider is the right thing at the same time.”