The Covid-19 pandemic has given defined contribution (DC) schemes reason to re-evaluate how they operate, including their investment approach and administration, according to research by Aon.

A survey taken during the firm's virtual conference series revealed that over 50 per cent of respondents reviewed their plan objectives following the events in the first half of 2020.

A further 20 per cent stated that they had subsequently made changes designed to “get back on track” where necessary, which the firm highlighted as evidence that Covid-driven reassessments are beginning to lead to a more “fundamental review” of the way schemes are operating.

Aon said that it was "encouraging" that many DC schemes have taken a step back to consider the long-term impact of Covid-19, despite the challenges faced over the past four months, with some already taking mitigating steps.

Aon head of DC consulting and senior partner, Ben Roe, explained that there may be a variety of reasons as to why some schemes have already taken such action, such as a gap in resources or inadequate systems back-up, which could have been highlighted during recent events.

"It’s likely that this is accelerating the drive to a more modern or outsourced approach, such as moving to a master trust or shifting to a bundled administration or investment provider," he added.

Aon clarified, however, that for some schemes "the sole initial focus" has been on immediate challenges, with 40 per cent of respondents stating that they had yet to consider long-term objectives as short-term actions had so far dominated time and thinking.

Roe continued: “That is no surprise – the combination of market volatility, resource constraints or administrators with differing levels of ability to adapt to new ways of working would exercise any scheme.”

“It is key for schemes to ensure that their immediate crisis resilience plan response is effective in the short term, before also considering the longer-term impact.”

The survey also revealed that around one in seven sponsoring employers have already started to consider cost savings that are likely to impact their DC schemes.

This also follows research by Cushon, which revealed that over half (54.4 per cent) of employers are expecting to carry out a review of their pension provider in the next six months.

Roe stated that employers may look to save costs by lowering company contributions or through a reduction in budgets for communication or governance support, clarifying however, that this is "likely to be detrimental to DC members" over the longer term.

He also noted that, in contrast, very few DC scheme members have so far reduced their contributions, perhaps thanks to the furlough scheme.

Roe warned, however, that cost cutting decisions on both the employer and employee side could become more widespread as the economic impact of the pandemic is felt more broadly.

"This will put the onus on those in charge of running schemes to retain the ability to stay flexible and to be capable of adjusting their planning in line with whatever transpires over the coming months and years," he concluded.

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