Is your scheme roadworthy? How a DC MOT can cut costs and boost value for both the employer and your employees

What condition are your staff’s defined contribution (DC) pension and employee benefits in? Our conversations with employers suggest the answer is not as good as they should be.


Employers provide pension and employee benefits to recruit, retain and motivate their staff – and support HR planning by providing enough money for employees to retire. These aims are undermined when schemes and benefits are left to drift.


This is particularly true when the rising cost of living is hitting household finances, changes to tax and legislation are increasing costs and the climate emergency and the consequences of the pandemic are affecting people’s values.


Mercer has found DC schemes set up several years ago are providing poor results for both employees and employers. In other cases, member benefits introduced in 2015 with pension flexibility have not been supported, causing members to lose out. The cost of living crisis is creating financial anxiety – with implications for productivity at work and the welfare of your business. This is the time to review your DC pension and broader benefits to make sure they are doing as much as possible to support your people.


“If it’s not broken, why fix it?” is the question companies often ask us. But something doesn’t have to be broken to need care and attention.


In the same way a car needs an annual check to ensure it remains roadworthy, pension schemes need a regular MOT to ensure they remain fit for purpose and to find ways to save money, increase value and reduce risk for all stakeholders. And because DC pensions are now interwoven within a broader employment package, the MOT should consider broader benefits too.

Market leading 12 point plan

Savings Vehicle

Vehicles and providers have evolved. Have yours kept pace with what is important to you?


Our research shows many pensions are poor value. Are you and your staff paying too much?

Tax Efficiency

Tax & NICs are increasing. Can you mitigatetheir impact to you and your people?

Age, Ethnicity, Gender

Diversity, Equity & Inclusion are key for employers. Are your benefits aligned to your beliefs?


Costs and risks are rising. Have you considered all options to keep you safe?

Broader Benefits

People's wants and demands have changed. Are you providing what staff value?

Financial Wellbeing

COVID-19 amd cost of living rises exert immense pressures. Are staff adequately supported?


Pensions are a key recruitment and retention tool. Do your people understand and value them?

Executive Support

High paid staff face specific challenges. Are you and they incurring unnecessary costs?

Retirement Options

Incorrect decisions can cost over 60% of savings. Scams cost more. Are you staff safe?


COP26 focused global attention. Does your pension align with your and yours people views?

Retirement Adequacy

Many staff can't afford to retire, creating HR, succession and business risks. Can yours?

Mounting financial pressures

Many employers were still dealing with the impact of the pandemic when their costs started to escalate. Wages have risen rapidly in some sectors and supply chain problems have pushed up prices for products and materials. Taxes are also rising and now inflation is expected to reach double figures. And all this is against a backdrop of rising regulatory costs.


Yet many companies are paying too much for their pension schemes. Prices in the UK savings market are falling and services are improving. You may be getting poor value by paying for services you don’t need or that can be provided for free such as auto enrolment management and financial wellbeing services and solutions.


In addition, member charges have been pressed down in recent years but it is up to employers and their advisers to seek out the best value. The savings are there if you ask.


All employee pension contributions are subject to national insurance contributions of 15.05% for employers – and up to 13.25% for employees. Under a salary exchange arrangement, these national insurance contribution costs can be removed – saving money for both the employer and its employees. And this can also open up opportunities to benefit from state benefits (for example, child benefit) that staff may not otherwise be entitled to.


Your members may also be paying too much tax. For example, when tax relief is applied at source, higher rate taxpayers in a group pension scheme need to reclaim amounts above 20% in their tax return – but many do not do so. Yet careful planning can mitigate this.

Rules and reputation

The regulatory workload and risks for pension schemes are increasing all the time – from efficient handling of financial obligations to integration of policies linked to environmental, social and governance (ESG) priorities.


We are seeing an increasing number of auto-enrolment errors because processes have not kept up with the pace of change. For example, a change of payroll provider or a corporate merger can lead to mistakes in meeting legal obligations. Responsibility for staying on top of changes can also ‘fall between the cracks’ of the employer and the pension provider.


In these situations a company is fined and has to repair its mistakes. This is costly and damages its reputation with the public and employees. It is a prime example of how lack of care and attention can come back to hurt you.


ESG matters are near the top of most companies’ agendas and are increasingly important to employees. Yet many companies fail to consider the implications for their pension schemes alongside their corporate goals.


For example, our recent Responsible Investment Total Evaluation (RITE) report found that only 38% of DC schemes included an ESG fund in their default investment strategy, excluding members from sustainable investments. This approach can leave your scheme exposed to assets that are at odds with your values.


Regulation is increasingly focusing on the social side of ESG and these issues resonate with employees. Companies are putting great effort into improving diversity, equity and inclusion – yet many are not applying these values to their pension schemes. Do the people overseeing your pension scheme reflect your wider workforce? Does your scheme treat all genders and age groups equally as the law requires?

Wellbeing, engagement and productivity

The pandemic had raised employee stress levels (and complicated HR planning) even before the cost of living crisis that now grips households took hold.


Soaring household costs are a worry for employees, and that stress can affect productivity – especially as many people work from home with little human interaction.


Employees are looking to their employers to help them through this difficult period. Inflation is now 9% and may well increase further. You may not be able to give employees a 10% pay increase but you can help them pay less tax, for instance by using salary exchange. Online tools can also assist them in managing debt and organising expenses.


This doesn’t have to cost lots of money – and simply adding new benefits isn’t the answer. Often employers have measures in place but few people use them. We have found that too few companies engage regularly with their employees to find out what they need and remind them of what is available.


Even employees who are not struggling to pay the bills are affected by the changes taking place. Many companies are struggling to hold on to valuable people as employees rethink their priorities, and rising taxes are prompting some high earners to question whether they should carry on working.


Engaging with these employees may lead to tax efficiencies that re-motivate them – or simply remind them that they have a good employer and are well looked after.


A virtuous circle of wellbeing, engagement and productivity has further benefits. Ultimately your people will be happier if you look after them and your HR planning will run more smoothly if employees have enough money to retire and make way for the next generation.

Insight and opportunity

Mercer offers a free DC MOT for any DC scheme, allowing you to benchmark your pension scheme and associated employee benefits against other employers. DC MOT will provide you with insight into how measures introduced by other organisations may help you respond to this testing environment.


Challenges create opportunities. This is the moment to address important issues that may have been overlooked in calmer times.

Ken Anderson
Ken Anderson
DC & Financial Wellness Consulting

References to Mercer shall be construed to include Mercer LLC and/or its associated companies.


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