Defined Contribution: Too important to be a gamble

BAKER TILLY DEFINED CONTRIBUTION Too important to be a gamble A As Defined Contribution continues to grow, employers and pension scheme trustees will need to demonstrate that they are looking after the interests of their employees and scheme members, following best practice and mitigating the risks. A Defined Contribution The future of pensions is in Defined Contributions Proportion of employees with Defined Benefit (DB) pensions is falling: 28% 46% 2012 1997 "Defined Contribution (DC) continues to grow and dominate the industry, just as we have long predicted." Karen Tasker, Associated Director, Baker Tilly Factors contributing towards the shift UK men UK women can expect to live can expect to live 78.2 82.3 years years LONGEVITY UK men UK women can expect to live a further can expect to live a further 18 20.6 years years COST AUTOMATIC ENROLMENT Employers must enrol workers into a workplace pension scheme if they: DC schemes are more cost-effective for employers Employers Contribution: • are aged between 22 and State Pension age DB DC 17% 6% • earn more than £9,440 a year work in the UK of monthly salary of monthly salary "In 20-30 years Defined Contribution members will be retiring in their droves. In many instances their pensions will be a fraction of what they are expecting" lan Bell, Head of Pensions, Baker Tilly Trustees of Defined Contribution schemes need to demonstrate good governance There is an industry wide focus on pension governance and raising standards for Defined Contribution Employers and trustees will need Many trustees do not know where to demonstrate best to focus their practice and risk management governance efforts "Trustees should ensure that they have identified, documented and managed the risks" lan Bell, Head of Pensions, Baker Tilly The Pensions Regulator's six principles for good workplace DC Essential Characteristics - Schemes are designed to be durable, fair and deliver good outcomes for members. Establishing Governance - Schemes have clear accountabilities and responsibilities agreed. 3. People - Those who are accountable understand their duties. On-going Governance and Monitoring - Schemes benefit 4 from effective monitoring through their full lifecycle. Administration - Schemes have timely, accurate and comprehensive processes for admin. Communication - Members are able to make informed 9. decisions about their retirement savings. Baker Tilly tips to mitigate DC risk Define your DC governance policy and allocate 1 responsibility clearly. 2 Ensure all elements are identified, documented and understood by those involved. 3) Include DC risk as a separate section in your risk register. 4 Regularly test internal controls. 5. Consider DC risk more regularly than at present (ideally at least every trustee meeting). Tailor communications to target the needs and attitudes of 6. different segments of members. 7) Establish DC Specific KPI's at member level. For more information on Defined Contribution, including videos visit: bakertilly.co.uk/sectors/Pages/definedcontributionriskoverview.aspx Contact the Baker Tilly Pensions Group on T: +44 (0)20 3201 8000 BAKER TILLY At age 65: At age 65: