Retirement readiness index

Get to know your pension scheme and take the right actions

With most tasks, the best approach is to set a goal and work out how to achieve it. DC pension schemes have slipped into the opposite mindset by focusing too much on processes and inputs to the detriment of employee outcomes. This is understandable given the many pressures faced by trustees and companies, but a rethink is needed on DC pension performance.

Mercer’s Retirement Readiness Index (RRI) is a retirement plan review that helps you refocus on your scheme’s core purpose – providing enough money so that employees can retire when they want with the income they expect.

The RRI produces an objective evaluation of your members’ retirement benefits based on the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards and provides you with insight into your plan across four core areas:

The scheme’s design
The take-up rate among employees
The investments offered
When and how employees access their retirement benefits

Importantly, we look to identify those who may be falling short, which could be by membership category, location, age or gender. This enables you to make interventions targeted at those groups.

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An example graph showing the projected living standards; below minimum, minimum to moderate, moderate to conformable and above comfortable by age and gender of a scheme’s members.

We then suggest a series of interventions you could take to improve your members' outcomes - and monitor the results so you can see the impact of your interventions on pension performance.

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Example scatter graph showing whether a proposed contribution increase changes the projected retirement outcome from off track to on track for every member of the scheme.

The RRI is a pension review that targets member outcomes

Very few DC schemes are likely to provide the pension performance their members hope for without interventions to improve the position.

The PLSA’s Retirement Living Standards give individual pension savers a guide to how much they will need for a certain standard of living when they stop work. It is the UK’s standard measure for benchmarking and retirement adequacy.

Our RRI carries out a retirement readiness assessment for each employee against the PLSA’s standards. It also measures the potential impact of different interventions and enables you to take action that often involves direct communication with employees.

Actions schemes have put in place with the RRI include:

Encouraging employees to make the most of company-matched contributions to improve retirement adequacy
Contacting women going on maternity leave to discuss the implications for their pensions
Adjusting the rate at which new employees are auto-enrolled
Changing service-based contributions to be fairer to younger employees
Adjusting the scheme’s investment strategy or reducing the charges that members pay

It’s not about how a pension scheme measures up on average; it’s about identifying those that could be falling short and doing something about it.

Mick Howard

Principal

Getting started on your pension review with our RRI

Almost all DC schemes could use some care and attention when it comes to member outcomes. Here are some points for you to consider as trustees or employers:

When did you last think about the standard of living your scheme members might expect in retirement?
Do you want to support your employees with a retirement readiness assessment and planning?
Are contributions to your scheme at a low level (typically 10% or less) or at the auto-enrollment minimum for some members?
Have you considered the potential impact on HR planning if your employees don’t have enough to retire?
Do you want employees to have a better understanding and appreciation of the benefits you provide?
As an employer, have you considered the role that pensions and benefits play as you compete to recruit and retain talented people?