Heineken's Carol Young talks to Helen Morrissey about the challenges of helping staff understand their DC default strategies.
Out of the 2,100 employees only 52 made no active decision with regard to their investment strategy. They were placed into the default fund which is our balanced lifestyle fund.
While the scheme is contract based we do have a governance committee. The lifestyle funds are white labelled and we have implied consent that this committee can make changes to the underlying asset allocations if necessary.
We felt there is still a lot of change to come and no default strategy remains fit for purpose forever and we need to be able to work with our advisers to make changes when necessary. You need to realise that you can’t future proof a default strategy; you need to put a governance structure in place to make sure it remains fit for purpose.
Helen Morrissey: What were the key challenges that you faced during this process and how did you deal with them?
Carol Young: The most important thing was to make sure employees knew they had support. If that support isn’t there then people can become too scared to make decisions. This is why we broke down the communications process into bite sized chunks.
First of all we asked about attitude to risk before going on to ask how active they wanted to be in determining their investment strategy etc. The way we got through this challenge was to road test our approach in advance so we could iron out any issues before we took it to our employees.
Helen Morrissey: Can you tell me how you choose the best partners/providers for this?
Carol Young: KPMG were our retained corporate consultants and we worked with them throughout the consultation process. In terms of choosing the right provider we put out a request for tender and put together a long list of 12 companies. After written submissions this was whittled down to three and they presented to us and we went on site visits before discussing the outcomes.
We had a lot of involvement from the company in this process with representatives from HR, benefits, payroll, communications as well as representation from the employee council. We felt we went through an intensive governance process before deciding to choose Standard Life.
Helen Morrissey: You’ve enjoyed a lot of success so far. What are your plans for the future?
Carol Young: A lot of what we have to do is incremental. For instance what impact will things like the introduction of flexible drawdown have on our default funds? We also need to make sure we communicate with people so they know what is going on for instance when we start switching them as they come closer to retirement in a lifestyle fund. We will also make sure the governance committee continues to meet regularly (it currently meets quarterly).
In addition we need to make sure new workers understand about the scheme. New joiners are now auto-enrolled on a step up option whereby in the first year they pay 3% while we pay 6%. In year two this goes up to 4% for the employee and 8% for us before going up to 5% and 10% in year three. This happens just after the annual pay review to make things easier though people can choose not to increase their contributions if they so choose.
While we have 97% take up from those who were in our DB scheme the numbers weren’t quite as high for those who were auto-enrolled – we still had a few drop outs. This was often due to seasonal workers but we do need to ensure we communicate with new joiners about the benefits of the scheme going forward.
Full name is the scheme: Heineken UK Flexible Retirement Plan
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