International automotive manufacturer Ford spends approximately $1 billion (£772,195,000) per year on pensions for its employees, spanning 36 countries and more than 120 different schemes. In the UK alone, 10,000 members of staff are enrolled in either defined contribution (DC) or defined benefit (DB) arrangements.
Quantifying the value of this not inconsiderable business spend might seem like an insurmountable task; however, working with investment consultant Redington, Ford has developed a data analytics tool that is able to pull in information regarding the full scope of its schemes across the world. This was implemented in quarter four of 2019.
Oliver Payne, Europe, the Middle East and Africa (EMEA) pensions manager at Ford, explains the questions that drove the tool’s development: “Being able to follow the money is valuable; what value are we getting and what value is the employee getting from the scheme? If $100 million has gone into one pension scheme, what does an average employee get from that? How do we combine all of this to give us a view from both sides?”
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The process of gathering this data was not as simple as grabbing pre-existing information from each country and hosting it in one place. In fact, Ford discovered that it had to go back to basics and ask what constituted a pension scheme in the first place.
“In some cases, such as the UK, it was quite clear, [but] in other countries a scheme is somewhere between occupational and government, or two schemes that look the same but for different subsidiaries,” says Payne. “[And] each pension plan has been set up as appropriate for the country at the time, so nobody has ever stood back and said ‘here’s our philosophy on pensions’. One of the benefits of this system is we can now stand back and ask why we have such different structures and results; should we have a common philosophy in the approach being taken?”
The tool is still in the early stages; as with any new analytic technology, Ford now needs to work on ensuring the data itself is the best quality, before it can go on to use this to improve its pension strategy in the future.
“We had to work hard to come up with consistent scoring measures with each scheme, to then compare across the whole world,” Payne says. “For an average person, here’s the value that they’re going to get.”
Part of this modelling process included working out a way of projecting actual monetary value. For example, the tool allows Ford to project what the return would be five years later if $100 was put into any given scheme, allowing for risk, tax and various other factors.
The ultimate goal is not only to ensure the money being spent by the organisation is being put to good use, but to maximise the value derived by employees, and ensure their individual contributions are effective.
“In an ideal world, I hope we can improve the value of pensions to employees; some of the worst [examples] are where we’re putting lots of money in but employees aren’t appreciating the value until they come to retirement,” says Payne. “We’ve got opportunities to identify where to focus our efforts to try and improve that value to employees.
“The other side of this is around communication: do our employees really understand what’s happening in their pension plans? Do they realise how much value they’ll get when it comes to retirement? We’ve now got a really good, consistent set of measures to actually compare the value. This isn’t about cost saving, it’s about identifying areas where we can improve the value to employees.”