As one of the first to slash its costs for AE schemes, L&G has attracted a lot of interest but needs to keep in mind the customer experience, says Platforum senior researcher Miranda Seath
Pensions minister Ros Altmann recently highlighted the low 9 per cent opt-out rate on AE schemes as a marker of its impact, particularly on virgin pension savers. She rightly sees AE as instrumental in halting what once appeared to be a terminal shortfall in workplace pension saving. In our profile this month, we look at Legal & General, a provider that has adapted its proposition to embrace the AE opportunity.
L&G does not disclose AUM for DC pensions. But we estimate it has £43bn under management, making it a scale player and second among the larger workplace savings providers. It has good traction with schemes looking for a cost-effective pension proposition, pursuing a bold pricing strategy to attract large and medium-sized employers.
L&G operates a 50bps pledge for its auto-enrolled default funds, meaning no member will pay more than 50bps. This includes the platform and the fund charge. In practice, L&G says, many pay a lot less. It does not require a minimum contribution, a policy that Aviva Friends Life recently said it would emulate.
Although charges have come down across the market, L&G was one of the first to really slash its costs for AE schemes. An employer we spoke to when researching the Platforum Workplace Savings Guide told us: “I noticed a big slash to the charges that we [employees] had to pay after auto-enrolment.”
But there is a caveat: for members to benefit from below 50bps charges, employers cannot operate a split-scheme structure and must enrol all employees with L&G.
In the eyes of corporate advisers, L&G is competing on price with the low-cost standalone master trusts. One said: “It is a good, low-cost proposition, comparable in price to People’s Pension and Nest.”
L&G’s proposition has added firepower because its default funds are managed by LGIM. Advisers we speak to rate the calibre of LGIM’s investment management – particularly for the price. In our survey of corporate advisers and employers last autumn, L&G was rated highly by both for its charges and choice of funds.
Its low-cost strategy means the provider needs a high volume of scheme members. Last year, Tesco rolled out its Master Trust DC scheme to all staff – a major coup for L&G.
It has recently relaunched its workplace Isa and, with the tapering of the annual allowance, L&G says it has seen a lot more interest from employers and advisers in the past six months.
To achieve such competitive costs, L&G has built a proposition that is largely self-serve; scheme set-up can be achieved online with little to no interaction with the provider. Advisers comment on this hands-off approach, with one saying: “For AE, L&G requires the employer to do everything itself.”
An employer we spoke to said the website for employees was confusing and it was hard to find information on the value of the pension pot. Accessing the website requires an employee ID, sent out with the joining pack. “But many employees don’t open it, and useful stuff is lost in the massive pack,” it told us.
We urge L&G to consider the member experience. We recognise that, to offer a very low-cost service, some of the handholding that employers and employees used to receive is no longer viable for all schemes. But L&G should think about how it can make it easier for members to confidently self-serve.
Its recent investment in risk modelling and retirement income planning tools is a good move. It is also keeping a close eye on robo-advice, access to which could improve engagement, particularly as savers start to take more complex decisions in the run-up to retirement.