In this current low return environment, employers are more and more looking for solutions to keep the pension plans attractive for employees. For defined contribution plans, the investment return is a key factor for building sufficient retirement income. Because of the current low return, replacement incomes after retirement are expected to be lower than initially thought. Both the contribution level and the expected return should be attention points when designing and monitoring defined contribution plans. As a rule of thumb, an annual return of one percent more for a complete career (3% p.a. instead of 2% p.a.) results in around 20% to 25% higher retirement capital.
Pension funds tend to invest in a diversified asset allocation which normally generates more investment return on the long term but are challenged from another angle, namely governance. Governance is becoming more and more onerous, which causes small and mid-sized pension funds to suffer from higher internal and external costs to run the pension fund. Many employers with small pension funds are becoming aware of this situation and are keen to find alternatives.
Low returns also heavily impact the cost of defined benefit plans. This will induce employers seeking solutions to better manage their pension costs.
LifeSight offers a solution aiming at optimising long-term investments, which helps keeping the long-term pension costs under control. LifeSight is Willis Towers Watson’s multi-employer pension fund and is part of a growing business worldwide. In Belgium, LifeSight manages defined benefit, defined contribution and cash balance plans with a flexibility that encourages alignment with companies’ characteristics and with strong cost focus.
LifeSight is designed to welcome pension plans managed in companies’ stand-alone pension funds or via group insurances. Depending on the complexity and company needs, the pension plan will be part of the DC Main Fund which also manages other companies’ DC plans or via a tailor-made separate account, set up for one or more companies belonging to the same group.
The advantages of LifeSight are as follows:
For companies with a small or mid-sized pension fund deciding to join LifeSight, the multi-employer pension fund reduces the governance burden. Governance and fund management is delegated to experienced providers, while company pensions or investment committees are installed to monitor plan funding, investments and employee communication. By setting up an efficient governance structure, companies can dedicate more resources to their core activities, while these committees still provide the link with the pension fund.
LifeSight also offers an alternative for certain defined contribution plans by giving more prospect of a higher retirement income through optimised long-term investments. In the DC Main Fund, the company can choose its own investment mix within pre-defined investment funds with an option for a Lifecycle approach.
LifeSight ensures that members’ best interests are looked after. Via an optional online communication platform, employees can follow the evolution of their retirement benefit. For more complex design, they can make online investment choices or choose the benefit level within a cafetaria concept.
What the best pension vehicle is to manage companies’ pension plans will depend on a number of factors. The recommended way is to set up a thorough business case that takes into consideration aspects such as company size and future growth, the characteristics of the pension promise, the assets, the contribution level, the risk appetite of the sponsor, the expected (guaranteed) return, costs, available resources, … . After analysis, the optimised solution for the company can be chosen.
For more information, please contact the LifeSight team members:
- Els De Jaeger (Els.De.Jaeger@willistowerswatson.com)
- Gret’hl Van Hoyweghen (Grethl.Van.Hoyweghen@willistowerswatson.com)
- Paul Logghe (Paul.Logghe@willistowerswatson.com)
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