AXA Wealth: Solutions not schemes - Ian Colquhoun, United Kingdom
In October of this year, auto-enrolment for pension schemes will come into play for many UK businesses. The legislation requires that all employers must auto enrol their staff into a workplace pension scheme and will need to actively opt out if they do not wish to remain members.
Exponents of auto-enrolment believe the scheme will curb the negative effects of the substantial savings gap that has emerged in the UK, engendered by a general lack of awareness amongst employees regarding the benefits to which they are entitled.
"I think most people agree that auto-enrolling people is the best way to bridge the gap," says Ian Colquhoun, director of AXA Wealth's corporate investment services. "We've had 15-20 years of getting people to save for retirement without compulsion, but it hasn't really worked. People have saved too little or not enough."
Auto-enrolment will see a further accelerated transition from defined-benefit (DB) schemes, in which the risk lies with the employer and trustees, to defined contribution (DC) schemes, where individuals are directly responsible for investments. However, given that the DC model also entails a contribution from employers, albeit nominal, there are some question marks over whether companies are content to effectively subsidise schemes in light of a parlous economic climate.
Also, while the UK's largest businesses will begin enrolment later this year, smaller companies' participation will be staggered over the course of the next five years, with full implementation earmarked for 2017. This brings its own scaling issues for employers with limited resources, as Colquhoun explains.
"They are less likely to have professional advice available to them," he says. "There are two issues that employers really need to address. The first is the physical plumbing-in of the kit that delivers the automatic enrolment. The second regards communication and really talking to your staff. Businesses can do this themselves or have an expert come in and explain what is happening."
Forming part of the AXA Group, AXA Wealth offers a range of pension and investment products to consultants. Given the challenges associated with auto-enrolment, the group has consequently turned its attention to assisting corporates in gaining a better understanding of pension scheme responsibilities so as to comply with duties issued by the Pensions Regulator.
"We run pension solutions, as opposed to schemes," says Colquhoun. "In terms of DC schemes, the regulators have been very clear that they want the best outcome for DC members. This means that companies need to take into account risk profiles of employees and ensure they have the best vehicles in place to match them."
According to Colquhoun, given the disparate nature of the national workforce, in which demographics can vary from business to business - for example, the investment needs of a workforce which has an average age of 48 may well differ from those with one of 35 - AXA Wealth is vigilant in meeting the cultural needs of its customers.
"As an intermediated service, we work with consultants in designing bespoke solutions for their clients," he says. "That solution could be confirming the best administration provider for your systems or sourcing the ideal investment managers to solve the issues regarding members saving for retirement.
"With DC, in which the risk is transferred to the member, our task is help scheme sponsors design funds through adopting the best ideas from across the industry. Also being investment agnostic, we can blend these best ideas into a fund for any particular group of people or company."
The value of communication
In addition to this, AXA Wealth also makes use of its in-house technological expertise to develop back-office software. With an onus on transparency, in which online data is updated on a day-to-day basis, the aim is that members will develop a greater understanding of the value of their pensions.
"On a daily basis, we start by taking in fund prices from fund managers, as well as advisory notes from consultants," explains Colquhoun. "We then collate a price and tell the person looking after the member's pension how many units have been bought that day and its value. This enables members to understand fully and immediately what their assets are worth, which is essential in building confidence in schemes."
Undoubtedly, with the looming deadline, corporates are up against it in ensuring that they are suitably prepared for the DC investment mandate. While robust technology will play its part in facilitating the process, Colquhoun reiterates the need for a greater chain of dialogue between trustees and members.
"You can look at the data as many times as you like, but in our experience, companies that spend time talking to their members, so as to better understand their needs, have always had higher participation rates," he says. "In fact, I would go as far as to say that the communication can be as important as the actual fund."
Simply the best
Colquhoun is under no illusion that the subject of pensions can be a complex affair to the layman, and that a lack of clarity has been the root cause of low uptake among certain employee factions. Furthermore, despite government efforts, there are also concerns that workers remain uninformed over auto-enrolment. In response to this, AXA Wealth believes it is essential to assimilate the language of its customers in order to ramp up awareness.
"For us, it's all about simplification," he says. "There are some very complex investment structures around today, and members want to feel comfortable that their pensions are safe," he says. "So we build benchmarks or targets that give a view of how their funds are doing against certain liabilities. The more complex the structure, the less interested people tend to be in it.
"You can have all the technology in the world, but it means nothing if you can't get it across in a way that people understand. At AXA Wealth, we spend as much time on getting this right as we do in developing the fund solution."
In line with regulations and further legislative changes on the horizon, AXA Wealth will continue to offer a service defined by a mesh of best-fit consultancy and technological expertise.
"Through our experience over the years, we have accumulated a wealth of information," says Colquhoun. "While we don't run a huge number of schemes, we try and choose our partners carefully, ensuring that they are as committed as we are to producing that kind of service to members. This regards building and communicating to the best of our abilities and standing behind the product. We intend to remain at the forefront of that kind of solution environment."