How to select a workplace pension for your practice
With the implementation of auto-enrolment, more architects are now able to save for their retirement. As a result, employers are responsible for selecting the scheme that best suits their practice and offers the best value to employees.
The scheme chosen by practices should be easy to join with no barrier to fulfilling your automatic enrolment duties, provided by a financially strong pension provider, and cost-effective with easy access. There are plenty of options in the pension market, but not all of them will be right for your practice and your employees.
RIBA Business partner, Corpad Employee Benefits Limited, provides pro-active advice on a one-to-one basis and offers the below guidance when it comes to finding the scheme that works best for your needs, whether you're a sole practitioner or a practice with employees.
When finding the right scheme for your practice, seek a pension provider who demonstrates:
- Financial Strength
- Low investment charges – known as an annual management charge/total expense ratio
- Ethical - provides a suitable default investment fund, demonstrating economic social and governance investments
- Has a strong track record of good past investment performance of the default investment fund
- Provides good administration to you and your employees and will support your practice
- Supports employees in providing access to ‘what if calculators’ and options around other investment funds
Default strategies may not be the best approach for everyone
When it comes to managing your workplace pension, providers offer access to a default investment strategy. This removes the complexity of deciding where to invest your pension contributions and approximately 90% of pension scheme savers leave their pension funds invested in the default strategy.
These pre-defined strategies often assume that employees will opt to purchase an annuity in retirement, which provides a guaranteed income for life. However, more recent pension legislation changes mean that you can access your pension much more flexibly, making the default strategy potentially less suitable for some pension scheme members.
One common challenge for those nearing retirement is witnessing the value of their pension fund decline. This happens because the default investment fund is designed to preserve purchasing power for annuities.
These funds heavily invest in government bonds, which tend to fall in value as interest rates rise. While annuity rates improve with rising interest rates, people often overlook this and focus on the decline in their pension fund value, without realising they could potentially purchase a similar income as before based on improved annuity rates.
Following the introduction of pension freedoms in 2015 and the increase in popularity of opting for Income Drawdown in retirement, most people will not want to see their pension fund decrease in value as they approach retirement, it is essential to question if the default investment strategy aligns with your own retirement goals and aspirations.
The RIBA Pension Solution
For sole practitioners through to larger practices who feel that the default investment strategies may not be right for them, Smart Pensions may offer the perfect alternative.
RIBA partnered with Smart Pension to provide a workplace pension scheme suitable for auto-enrolment. Smart Pension aims to invest in a sustainable way, which takes into account environmental, social and governance (ESG) considerations.
When investing, Smart Pensions think about:
- the financial risks associated with environmental impacts such as climate change
- social impacts which are issues affecting the fair treatment of people
- governance, which considers the way that companies are run
Some of their funds not only consider these risks but also look to invest in companies and projects that provide solutions to our environmental and societal issues.
This is the difference between investing in a company that is reducing its carbon emissions by using renewable energy and investing in a company that is producing renewable energy, for example, a wind farm.
Smart Pensions default investment strategy contains 100% ESG funds. They also offer a range of 16 additional funds that employees can choose from
The following table provides cumulative past investment performance figures of the Smart Pension default investment fund, Sustainable Growth Fund.
Smart Pension Sustainable Growth Fund Past Investment Performance
| Pension provider | 3 months | 6 months | 1 year | 3 years | 5 years |
|---|---|---|---|---|---|
| Smart Pension Sustainable Growth Core Fund | 1.4% | 3.8% | 18.6% | 20.8% | 38.6% |
| LF Mixed Investment 40-85% Shares | 3.7% | 3.2% | 15.3% | 5.3% | 25.1% |
Note: Past investment performance figures are cumulative performance figures provided by Trustnet and Mobius Life 13.11.24. Past investment performance is no guide to future investment performance and should be viewed in this way. Performance figures are shown gross of charges. Smart Pension charges are 0.25% of the fund per annum, known as an annual management charge.
You do not have to use one of the default investment strategies, you also have a choice to self-select investment funds instead.
If you choose your own investments, it is important to keep an eye on them, and you may want to take advice and consider changing them along the way if you think it is necessary.
Taking independent financial advice
While there are alternative funds available for self-selection, most individuals may not know where to start when choosing the strategy that works best for them or their wider practice.
If you find yourself in this situation, seeking independent financial advice is a prudent step. A professional advisor can help you determine the best investment options to achieve your retirement objectives. They can explain risk levels and provide historical performance data so you are well-informed and better able to make a decision.
An Independent Financial Advisor has the expertise to recommend the most suitable fund selections and compare alternatives that better align with your specific circumstances.
They can also review any other pension funds you may have, offering a comprehensive financial perspective. It is helpful to take advice at these key stages in your career:
- when you begin saving into a scheme or are ready to start
- if you change employers and have more than one pension pot
- leading up to retirement (15 years before is a good time to review plans and again at ten and five years)
- when you reach retirement and need to know options for accessing your money
Corpad Employee Benefits Limited is an independent financial advice team that is always on hand to assist members with any query and can provide regular pro-active advice on a one-to-one basis throughout your career as well as at the retirement stage.
Corpad also provides help to practices by offering advice on the full range of employee benefit options, sourcing the best terms for any additional arrangements, and offering a full range of services to individuals. As a benefit to RIBA Members, quotes can be provided with no obligation.
If you're unsure about your pension investment strategy or would like to seek guidance on alternative options, contact business@riba.org and we can put you in touch with a Financial Advisor at Corpad.
Find out more about our RIBA Pension Solution for further information.
RIBA does not provide financial advice. We provide support to practices and factual information on the Smart Pension auto-enrolment qualifying scheme. If you require advice, we suggest you engage with an independent financial advisor, such as Corpad.
