Switching providers too difficult for employers, DWP finds

Switching providers too difficult for employers, DWP finds

Companies rarely switch pension providers as the process is too onerous, the Department for Work and Pensions has discovered. 

A survey conducted by DWP, which consisted of 59 calls with employers ranging in size and sector across Great Britain, also revealed that “the few” that had switched provider would only do so when dissatisfied with customer service, investment performance or flexibility.

“Most employers perceived automatic enrolment as a good policy and were supportive of its objectives and aims,” DWP’s study said.

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While engaged employers are taking a “paternalistic” approach that sees them looking after their employees, the less engaged view pension saving as their employees’ responsibility.

The finding comes amid concerns that employees are not being active enough in monitoring pension contributions, with more than one in four unaware of how much they pay per month.

Administrative burden

Employers mainly considered time and financial resource, the reputation and security of a scheme, value for members and advice or recommendations from outside bodies when making workplace pension decisions, but the DWP noted the wide variation across employers in their responses to most areas of the research. 

According to the survey, employers consider value for members through the lens of investment returns, and ease of communication and support from the pension provider, but still view the resource burden as the most significant issue when thinking about switching provider.

Of the few employers who had switched provider, dissatisfaction with their original provider’s customer service served as the main reason to switch.

Obtaining value for members was the most prominent response when asked what would drive employers to change providers. It is also considered when contemplating new or changed initiatives, such as small pots consolidation and investing with an environment, social and governance focus. 

With regards to ESG, employers predominantly considered the risk to employees’ investment returns, however, they also considered the ease of use or sustainability of the initiatives. 

The finding comes after a warning on the proliferation of small pots. Speaking at the Pensions and Lifetime Savings Association’s annual conference earlier in October, Pensions Policy Institute deputy director Sarah Luheshi cited figures from a 2018 PPI study that suggested that the number of small pots could rise to 27mn by 2035.

Employers also viewed the time and resource burden that switching providers would involve as more of a barrier than the financial costs. The issue of overwhelming administrative tasks was identified as being most prevalent for small pots. 

Employer engagement

The research found that employer pension engagement was often influenced by the amount of knowledge or resources the business had. 

Engaged employers took a more “paternalistic approach whereby employees are looked after”, the DWP stated, meaning employers typically provided wider-ranging support and considered the impact of decisions on employees. 

This trend was typically seen in large, professional employers. Conversely, less engaged employers viewed pension saving as the employee’s responsibility, DWP found.