These days finding a defined-benefit pension scheme still open to new members is as rare as a UFO sighting. And those who claim to have seen either are often considered mad.
But too many companies “set up defined-contribution [DC] schemes and just walk away,” according to Andy Cheseldine, a senior consultant at Hewitt Associates, an HR consultancy. “They are kidding themselves if they think it works like that.”
Though the point of DC schemes is to pass responsibility for investment decisions from companies to members, few firms get this message across effectively, according to Paul Kelly, a principal at consultancy Towers Perrin. Despite having no legal recourse to their employers, workers often “blame the company emotionally” for poor performance, Kelly says. DC schemes in the UK lost £157 billion (€185 billion) of their value in the year to October, according to Aon Consulting.
To guard against disgruntled staff, Cheseldine says that firms could do more to educate scheme members about their investment options. Younger workers should be reminded that short-term setbacks are often reversed over the long term, and employees closer to retirement should be urged to allocate their assets more conservatively.
Even the most attentive companies, however, may find themselves fighting a losing battle against human nature. “How many members complained about the market being overvalued a year ago?” asks Cheseldine. “How many congratulate the finance director for putting them in a really good scheme? It tends to be a one-way valve, the blame game.”