Given the amount of money being spent by employers and employees on their workplace pension, you might have expected most organisations to carry out regular reviews to check whether such schemes are delivering value for money for scheme members, and for the employer.

However, the CIPD’s Spring 2023 Labour Market Outlook (LMO) finds that just 29% of organisations using a defined contribution (DC) pension scheme check if it’s delivering value for money for its employees every one to three years. Similarly, only 27% also review whether it’s delivering value for money for the organisation over this period.

By contrast, around a third of HR professionals were simply unaware if the workplace had ever reviewed whether the DC plan was delivering value for money, either from its members’ (30%) or its employers’ (33%) perspectives.

In terms of delivering value for money for employees, the rest of the respondents said that their employer reviews its DC scheme every four to six years (9%), every seven or more years (3%), or on an ‘as and when’ basis (17%).

What about the private sector?

More than one in ten (12%) confessed their employer hadn’t reviewed the scheme at all and had no plans to do so. Within the private sector, this response varies by size, with small- and medium-sized firms being more likely to say this (21%) than large companies (5%). Also, across all employers, those that don’t have a financial wellbeing policy are far more likely to say this (20%) than those employers that do have such a policy (5%).

Our recommendations

Given all the money being spent on this benefit, the CIPD recommends that HR professionals check regularly whether the DC pension is benefitting the organisation and its people. In terms of how to carry out a review, HR teams could look at:

  • Member communication and support: assess the effectiveness of member communication and support services. Explore whether the provider offers clear and understandable information, educational resources and tools to help members make informed decisions.
  • Fees and charges: evaluate the fee structure, including management fees, administration costs and any extra charges. Compare these fees to industry averages and consider their impact on members' retirement savings over time.
  • Fund performance: analyse the investment returns over several time periods, comparing them to relevant benchmarks and industry standards. Assess whether the returns are consistent, competitive and aligned with members' long-term retirement goals.
  • Flexibility and choice: review the range of investment options on offer. Evaluate whether the plan offers diversified investment choices that suit different risk appetites and investment preferences. Consider whether it’s easy for members to switch investment options.
  • Workplace impact: assess how the scheme is helping the organisation attract and retain staff in a competitive labour market and support the organisation’s brand and environmental, social and governance objectives. For example, what’s the awareness of the scheme and its features among workers, do they see it as generous, what changes would they like, etc?

What does our Good Work Index say?

The CIPD Good Work Index 2023 finds that while 17% of employees knew they were in a workplace pension, they didn’t know whether it was a defined benefit (DB) or DC. Among those that did know it was DC, 28% of them couldn’t say how much their employer contributed to their pot. These findings indicate there’s a great opportunity for HR professionals to boost employee awareness and appreciation of this benefit.

What else can HR do?

Other areas that HR teams can explore to see whether the plan is delivering value for money include: how the scheme is being governed; what retirement outcomes are being achieved; and how the plan compares to schemes offered by other providers through such measures as net promoter scores, employer and employee cost, and scheme features.

The fact that so few employers regularly review their DC plans suggests the current model is failing and we’ll eventually see legislation requiring workplaces to carry out such reviews on a regular basis.

Our LMO survey also asked HR professionals whether, since the start of 2022, the number of staff in their organisation cutting contributions to the workplace pension scheme (whether DC or DB) or opting out entirely had changed.

The survey found 15% saying that there had been an increase, most notably in education (20%) and health (19%). While 21% of HR professionals in the finance and insurance sector also reported an increase over this period, a further 10% reported a fall in the numbers of staff reducing contributions or leaving entirely.

We also asked respondents what the organisation would do with its contribution if an employee did leave the workplace pension. The most common response (33%) would be to keep the employer’s contribution.

By contrast, 11% would pass the employer contribution to the employee as higher pay, while another 11% would keep paying its contribution into the employee’s pension fund. The remaining respondents didn’t know what their employer would do (30%) or that their organisation had so far not considered what it would do should this situation arise (13%). Just a handful of employers (1%) would pay the contributions to a non-pension savings plan for the employee.

The CIPD encourages employers to review how they could support those temporarily opting out of pension saving due to the cost-of-living crisis. For example, are there financial wellbeing benefits that could be offered to help prevent them from having to leave the scheme, such as a zero-interest welfare loan, financial guidance, or the option to reduce their contributions rather than having to opt out fully? For those that have no alternative, then the employer could assist them set a date when they would return to the pension plan as well as setting aside the employer pension contribution until that date.

About the author

Charles Cotton, Senior Performance and Reward Adviser

Charles has recently led research into the business case for pensions, how front line managers make and communicate reward decisions, and managing reward risks, as well as the creation of a good practice guide on the annual pay review process. He is also responsible for the CIPD’s public policy work in the area of reward and is a Chartered Fellow of the CIPD.

More on this topic

Thought leadership
Are British employers making progress in reducing the gender pay gap?

Charles Cotton looks at trends and developments in gender pay gap reporting in Britain, highlights implications and makes recommendations for HR teams

Labour Market Outlook

Read our latest Labour Market Outlook report for analysis on employers’ recruitment, redundancy and pay intentions

More thought leadership

Thought leadership
Are British employers making progress in reducing the gender pay gap?

Charles Cotton looks at trends and developments in gender pay gap reporting in Britain, highlights implications and makes recommendations for HR teams

Thought leadership
Prepare for new duty to prevent sexual harassment

Employers need to be ready to protect employees from sexual harassment under a new statutory obligation

Thought leadership
Navigating change with speed and agility is key for the C-suite

Peter Cheese, the CIPD's chief executive, looks at the challenges and opportunities faced by today’s business leaders and the strategic priorities needed to drive future success

Thought leadership
New employment legislation to come into effect on 6 April 2024

We outline the key pieces of legislation set to come into force in the UK and explain their implications for employers and employees