Picking the right workplace pension for corporate clients

He says the core elements driving member outcomes are an employee’s contribution decision, which in turn heavily influenced by the quality of engagement support offered by the scheme, the performance of the investments over time, and having the right options and guidance before retirement.

For example, he says advisers should question if the scheme is designed to support these elements, educate and support employees with making these decisions and drive tangible action.

Mr Jenkins recommends advisers check what engagement material is available to drive members to take action to increase the contributions into their scheme. He says advisers should check if the scheme has a high quality default fund and what investment options are available.

Finally, Mr Jenkins says checks should be made on what retirement options are available from the scheme. He says advisers should check if the scheme facilitates access to the new flexibility as allowed by Budget 2014.

Charges are another aspect influencing outcomes. Charges have been capped by the government for auto-enrolment schemes at 0.75 per cent. This does not currently include transaction fees, nor the initial charges applied even by government back Nest.

Mr Jenkins says charges are not the only driver and often have less impact compared with contribution levels and investment performance.

For example, Mr Jenkins says for a person starting with £20,000 and paying £250 per month a reduction in charge of 5 basis points would only increase the final fund value by between 0.5 per cent and 1 per cent after 20 years of cumulative charges.

By contrast, increasing contributions by just 2 per cent could increase the fund value by 18 per cent over the same period, while increasing investment returns by 1 per cent could increase fund values by 14 per cent over the same period, Mr Jenkins says.

In selecting the workplace pension arrangement that is right for any specific individual, John Reeve, senior consultant at Premier Pensions Management, says advisers will find the choice is generally limited.

Most employers only offer one type of pension arrangement, he says. Where more than one type of arrangement is offered Mr Reeve says this will generally be to meet very different needs.

He says: “The first thing to assess is whether the employer is willing to make a contribution to different arrangements and, if so, at what level.

“While higher contributions into a poor arrangement may not be good value, maximising the employer contribution will generally be a good thing.

“When assessing different options the definition of the salary on which contributions are based in paramount.

“Some arrangements set up to meet the government’s auto-enrolment legislation restrict contributions to a percentage of salary between strict upper and lower limits.

“This will restrict both the amount that your client can contribute and the amount contributed by the employer.”

Other than the contribution paid by the employer, Mr Reeve says the other key components are charges, investment returns and the strength of the insurer/provider.

He says: “Most workplace pensions will be with an established provider (albeit that they may be new names to the public such as Nest, Now Pensions or People’s Pension) and there is unlikely to be a significant concern regarding the provider.

“Charges are also now being controlled but some older arrangements still have high charges which need to be considered. Finally many arrangements (but not all) offer a range of investment options.

“Some of these are not obvious in the initial paperwork which will be focused on the unadvised members and will be designed not to confuse them.

“If you feel that your client should be looking at investment options not available then it is worth checking whether others are available albeit they are not highlighted to the members.”