How Collective Retirement Plans Help Support Financial Sustainability

How Collective Retirement Plans Help Support Financial Sustainability

10 of 12

This insight is part 10 of 12 in this Collection.

January 3, 2024 12 mins

How Collective Retirement Plans Help Support Financial Sustainability

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Improving retirement plan governance is crucial during economic uncertainty. Collective retirement plans, like a pooled employer plan, reduce risk and streamline administrative expenses for employers while also boosting employee support.

Key Takeaways
  1. Businesses around the world are realizing the potential of collective retirement plans to advance operational efficiency, lower costs and deliver improved governance.
  2. Collective retirement plans represent a new opportunity for business leaders to drive meaningful and sustainable change.
  3. Delivery platforms will continue to evolve, helping leaders to stay ahead of the curve.

Economic downturns diminish returns on investments, potentially jeopardizing longer-term financial goals. As businesses look for ways to manage costs amid evolving macroeconomic pressures, retirement plans are evolving. Streamlining and delegating retirement plan administration is a vital way for leaders to better meet employees’ needs while reducing overhead costs.

Market volatility can trigger a decline in asset valuations, directly impacting investment portfolios. This is leaving many employees with the prospect of reduced savings. Although volatile markets are likely to settle over time, business leaders can help in the short term by focusing on opportunities to reduce costs and deploy lower charges across their retirement structures.

Alongside the shorter-term focus, business leaders and regulators alike across regions are engaging with new legislation to build long-term sustainability.

  • Europe

    The 2023 Future Pensions Act1 is a bold action by the government in the Netherlands to introduce sustainable pension reform and ease pressure on social systems. Ireland is considering similar legislation, which has already been introduced in the UK, with plans to implement enforced auto-enrolment. This will give employees easy access to their workplace pension schemes. Further, Germany is now allowing employees to have defined contribution plans alongside a shifting retirement age.

  • North America

    The United States has also focused on boosting sustainability for businesses and employers with an update to pension legislation. Signed into law in 2019 and 2022, the SECURE and SECURE 2.0 Acts allow organizations to support their employees’ long-term financial wellbeing with many new refinements aimed at helping retirement plans operate more efficiently and effectively.

Globally, many employers are transitioning from traditional defined benefit (DB) pension plans to defined contribution (DC) plans, ultimately providing increased flexibility for employees. With so many assets now in DC plans, governments are taking an interest in these programs and putting more requirements on those responsible for administering them.

In navigating this transition, employers are administering plans in isolation, proving to be a gateway for gross inefficiencies. Tony Pugh, DC proposition leader in Aon’s Wealth Solutions, says, “Employers have a lot on their hands and don’t need to deal with compliance issues around retirement programs. So, we are seeing employers of all sizes looking to multi-employer master trust-type solutions.”

In the U.S., there has been a history of increased litigation in retirement plans following periods of economic distress and uncertainty.

Collective Retirement Plans Deliver Economies of Scale

Organizations can reduce costs and boost operational efficiency by allowing a trusted vendor to shoulder the administrative and governance burdens of their pension program on their behalf. By pooling resources with other businesses in collective retirement plans, organizations can access economies of scale to provide better solutions at lower costs.

Collective retirement plans, such as pooled employer plans (PEPs) and master trusts, create efficiencies for businesses by relieving leaders of administrative burdens and using the collective power of participants to boost their position in the market and access better rates. Consolidation of retirement plans is more efficient than multiple companies running their own programs. The experts running the programs can leverage their scale and take it to market, reducing administrative and investment costs. Such plans are easy to implement and maintain, improving outcomes while keeping costs down.

PEPs and Master Trusts Lower the Costs for Employers

For businesses participating in PEPs or master trusts, costs typically decrease significantly, enabling businesses to deploy savings and provide lower charges and wider services to employees.

With more than 600,000 individual 401(k) plans2 in the U.S., there is no need for a similar amount of individual and unique structures to provide retirement savings and income to American employees.

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As for retirement outcomes, the costs typically decrease 40 percent or more for participants, and that results in more money staying in participants' accounts and growing for retirement.

Rick Jones
Leader of Aon’s National Retirement Practice, North America

Collective retirement plans also provide indirect cost savings in other areas of the business. Delivering and managing retirement plans is no longer limited to HR and finance leaders. In fact, certain parts of administering a plan are stretching responsibilities into legal and risk management functions. Employers can, therefore, retain autonomy to control the things that matter — such as plan design, vesting provisions, and how much money goes into employees’ accounts — while relieving themselves of administrative burdens such as fund selection and employee communication. This enables leaders to focus on their core business.

A Positive Pension Reform Outlook

As the benefits of pension reform become more evident, sweeping systemic changes are taking place around the world.

  • Multi-employer arrangements are growing across Europe, the UK and Ireland. A recent surveyin the UK showed that master trusts are expected to grow by GBP 500 billion over the next few years. In countries such as Finland and Norway, the conversion from defined benefit to defined contribution plans has clearly demonstrated how well distinct employee plans can be consolidated.
  • In the Netherlands, all employers are required to transition from defined benefit programs to defined contribution programs over the next four years. If each employer establishes its own defined contribution plan, the model will be inefficient. This legislation gives employers a great opportunity to take a step back and evaluate the benefits of consolidating plans with other employers to simplify administration and lower costs for employees.
  • Australia boosted the appeal of retirement planning for its population by setting up a hub dedicated to retirement account consolidation, eliminating the need for expensive manual procedures.
  • The U.S. Congress previously endorsed PEPs for 401(k) plans, and three years later, they endorsed them for 403(b) plans used in the not-for-profit sector. This shift is playing out as anticipated globally in the U.S. The changes will only improve outcomes for individual retirees, as well as American businesses.

As capabilities evolve over time, members of collective retirement plans will have access to new services and different investment options. The scale of these plans means that businesses are better positioned to leverage new services and capabilities and build more robust long-term financial plans.


In the UK, 48 percent of employers are looking to change their DC plan structure, with 27 percent of these citing the increased governance burden as their main reason to switch.

Aon's 2022 DC Pension Scheme and Financial Wellbeing Survey

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Whether it's the cost of managing the program itself, the cost of managing the associated risks or the cost to participants, PEPs and master trusts can reduce the financial burdens and boost opportunities to improve retirement outcomes.

Byron Beebe
Global Chief Commercial Officer, Human Capital Capabilities

There is proof of concept globally that these master trusts and pooled solutions work. In volatile economic times, businesses need to look at the cost of delivering competitive and comprehensive benefits and scrutinize the efficiencies of different structures, including PEPs and master trusts. The evidence is clear: those in a collective plan are minimizing administration costs. Employers should consider how to deploy these savings in their retirement strategies to both support their employees and safeguard longer-term financial growth.

Partnering with specialist advisors will help leaders engage the necessary objective assessments to make better decisions.

1 The new Pension Act: this is what it means for you
2 Investment Company Institute
3 Broadridge Navigator Report, 2021

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The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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