UODSS member consultation: information on employee investment choice and support in a Defined Contribution Scheme

What is being proposed?

The University is proposing to change your future pension provision. This means that you would not build up further benefits in the UODSS. The University is proposing to enrol current members into a Defined Contribution pension arrangement, meaning your future pension accrual will depend on the contributions invested, the investment return and you will choose how to use these investments during retirement.

What pension benefits do I build up at the moment?

The UODSS is a Defined Benefit pension scheme. This means your pension is based on your pensionable salary history and your length of membership of UODSS.

Who will operate the Defined Contribution arrangement?

One of the University’s responsibilities is to ensure that the Defined Contribution pension arrangement is, and continues to be, suitable. At the appropriate time, the University will take professional advice from their Investment Advisers and implement a pension provider who is be able to offer pension administration and governance services and investment options

Investment options – The Default Arrangement

If you are an eligible member of the UODSS, you will be automatically enrolled into the new arrangement if the proposal goes ahead. The term ‘Default Arrangement’ means an arrangement into which your pension contributions are invested if you do not choose your own investments from the range of options that will be available.

You will receive information about the default arrangement and other investment options before being enrolled into the Defined Contribution pension arrangement.

Investment options – Fund Range

The Defined Contribution pension provider will offer a range of funds (and potentially strategies) alongside the default arrangement. You can therefore align your chosen investments to your attitude to risk, as well as when and how you intend to use your pension savings. The Defined Contribution pension provider will also offer support to build your understanding of the different options available, including the risk profile and the aims of a particular fund / strategy. (You can then position this against independent support).

If you wish to choose your own investments you may do so from the range of options that will be available. Once the Defined Contribution pension provider has been selected, further information will be provided.  This will explain the investment options available and provide guidance on which funds or investment strategies are likely to be suitable for different members’ circumstances.  There will also be further information available online, including how well those funds are performing.

Online Services

Most pension providers offer personalised online access, so you can see how your investments are doing at any point in time.

Investment fund performance and risk

Whilst some investment funds may provide guarantees, most do not, so they can increase or reduce in value from time to time. Selecting the right funds to invest in is important, and you should consider your wider financial circumstances, as this affects how much investment risk you may wish to take.  For shorter term investments, such as when members are approaching retirement, reducing investment risk by moving to lower risk funds is normal practice (and can be automated), but over the longer term the short term ups and downs of investments markets are less critical but higher risk funds usually provider a higher return over the medium to long term compared with low risk investments. 

Independent support is available

If you do need independent support beyond what any pension scheme provider offers, you can explore the Pension investment options guidance on the MoneyHelper website. You may feel that you want to be told how to invest your money, and you can find a link to information on Choosing an independent financial adviser guidance from the MoneyHelper website; please note that you will need to pay for any professional advice you receive.

Provider Communications - Annual Benefit Statements

The pension provider will provide ongoing communications throughout your membership of the pension arrangement, to help you prepare for the options you’ll have at retirement, including an annual benefit statement.

The annual benefit statement will include information regarding:

• Contribution levels – how much you and the University have contributed to your pension over the last year, and what the contribution levels will be in the future.
• The current value of your pension savings and an illustration of future pension entitlement using assumptions prescribed in law.

Retirement help

Defined Contribution pension providers will write to scheme members between 5 and 10 years before you are expected to retire. You can also check your possible retirement income on the MoneyHelper website and request an estimate of your State Pension on the GOV.UK website. You are also able to track down a previous workplace pension, if you have lost touch, by contacting the Pension Tracing Service – a free, government service on the GOV.UK website to help find lost pensions.

Retirement decisions

The Defined Contribution pension provider must make members aware of their retirement options at least four months before their expected retirement date.  This includes telling you about Pension Wise, the government’s free and impartial service that will help you understand your retirement options.

Please note, when your retirement approaches, that you will need to decide:

• whether you want to retire now or later
• which of the retirement options you want to choose
• what to do if you only have a small pension pot
• what to do if you have more than one pension pot

Retirement options

Members of the pension scheme are likely to have different options for their pension pot, either available directly from the pension provider or on transfer to a different pension scheme. You will be able to:

• keep your pension pot where it is
• get a guaranteed income for life (known as an 'annuity')
• get a flexible retirement income (known as 'flexi-access drawdown')
• take your pension pot as a number of lump sums at different times
• take your whole pension pot in one go
• choose more than one option and mix them

For more information, you can see guidance on the options for using your Defined Contribution pension on the MoneyHelper website.

Pension Investments - Costs and charges

The Defined Contribution pension scheme literature, which will be produced by the pension provider, should include information about the contributions paid by you, and by the University and the tax relief provided by the Government. It should also include information about the pension fund costs and charges, and who pays them (i.e. you or the University).

How safe are your Defined Contribution investments?

As part of its due diligence process, the University will select a reputable pension provider. Pension provider’s are subject to strict regulation. They have to be able to demonstrate financial strength and to help them meet their obligation is to their customers, they cannot be directed away from this purpose.

Governance of the Defined Contribution pension arrangement

The Defined Contribution pension providers are subject to regulatory oversight by the Financial Conduct Authority (FCA).  Defined Contribution pension providers are required to be authorised by the FCA before they can engage in the establishment and operation of a regulated pension product.

In terms of positive outcomes, the pension provider and the University’s payroll will play an important role in ensuring contributions are paid across and invested correctly and in a timely manner.

Independent Governance Committees (IGC)

It is important that the Defined Contribution pension provider offers a well-managed arrangement with appropriate investment options, well run administration and adequate internal controls. This resulted in the requirement for providers to operate IGCs from April 2015. The role of the IGC within the governance structure of a pension scheme will be to:

• Monitor and report on whether members are receiving value for money
• Focus on default investment strategies
• Fund performance
• Core financial transactions.
• Challenge the provider – hence the need to be ‘independent’
• Be proactive
• Escalate any concerns to the FCA about the provider

What is the Financial Services Compensation Scheme?

The Financial Services Compensation Scheme (“FSCS”) is the UK’s statutory fund of last resort for customers of authorised financial services firms, such as pension providers. This means that in the unlikely event of the pension provider being unable to meet its liabilities, the FSCS can pay compensation to pension scheme members.

How does the FSCS operate?

The FSCS became operational in December 2001 and is an independent, non-governmental organisation.  It was set up under the Financial Services and Markets Act 2000 to act, in certain circumstances, as a “fund of last resort” to customers of authorised financial services firms. 

Authorised firms are those regulated by the Financial Conduct Authority (“FCA”) and / or Prudential Regulation Authority (“PRA”). European firms (which are authorised by their home regulator) that operate in the UK may also be covered under FSCS.

The FSCS may pay compensation for financial loss to eligible claimants if a firm is unable, or likely to be unable, to pay claims against it, often because it has stopped trading and has insufficient assets to meet claims, or is in insolvency.  It is a free (to consumers) service and is currently funded by a compulsory annual levy imposed on the authorised firms it covers.

Resource: www.moneyhelper.org.uk