Andrew Davison, Head of Advice at Old Mutual
Having a retirement fund in place that provides benefits to employees is one thing. But how healthy is it, and is it delivering on its promises? These are the questions answered by OnTrackTM, the new tool recently launched by Old Mutual Corporate Consultants (OMCC). Its aim is to help trustee boards and management committees gauge the effectiveness of their funds and benchmark them against other schemes in its database.
The OnTrack tool does much more than just answer questions though. It also assists boards to put measures in place to improve their funds’ effective delivery of superior retirement benefits, says Andrew Davison, Head of Advice at Old Mutual Corporate Consultants.He states that retirement funds have a very clear primary purpose – to provide a vehicle for employers to assist their employees to save for retirement. However, many employees reach retirement only to discover that their savings aren’t sufficient to maintain their standard of living. “There are a number of reasons for this – some relate to shortcomings in the retirement fund or funds to which the person has belonged, while others stem from poor decisions on the part of members themselves. It would however be a lot more valuable to know that a fund is properly designed, and decisions are translating into sound retirement outcomes for members, long before it is time for the member to retire. We specifically designed OnTrack to shed light on a retirement fund’s performance during that all-important time when an employee is still making monthly contributions to be invested and grown until their retirement,” says Davison.
According to him it is important to note that performance in this context is about more than investment returns. OnTrack sets clear target levels of asset accumulation, using savings as a multiple of annual salary, for each member based on their number of months of service in the fund. This is compared to the actual level of assets accumulated by each member to determine whether they are ‘on track’ or not. The overall levels of preparedness are then evaluated for the scheme as a whole. “It encompasses the benefit design, member contribution rate, choices offered to members, defaults, fees and costs, and member communication. It is about knowing where a fund is going, monitoring progress against clear targets and making informed decisions that drive better outcomes.” A fund’s OnTrack rating will compare it with other funds in the OMCC database, which will include funds in a similar broad industry as well as funds of a similar size in terms of membership. In so doing, funds (and the employers backing them) will be able to see how their employee benefits stack up against other funds. “We expect that this will motivate boards to improve their rating by revising their fund’s benefit design, enhancing communication with members, and increasing the support and education provided to members,” says Davison.
He explains that once an OMCC consultant has conducted the fund health check, the results will be shared with clients in an annual fund health report. “Unlike replacement ratios, this report won’t be an individual member report, but will rather provide a board with a health check of their fund. It aims to empower them with the necessary insights to make better decisions for the benefit of their members. “By regularly monitoring a fund’s progress and taking steps to improve the assets accumulated by members, funds could potentially deliver superior retirement benefits to a much higher proportion of members. We therefore believe that OnTrack is a vital tool that will transform the way boards and employers approach their retirement funding arrangements by providing them with a clearer understanding of their funds’ effectiveness, as well as measurable and tangible actions to improve the outcomes achieved by their members,” concludes Davison.
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