Armed with leaflets, intranet back-up, and personalised letters sent to home addresses, the message must be simple, bold and unwavering, says Jamin Robertson
Case Study: Emap
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Top employers that make it their business to communicate well with customers are usually one step ahead when it comes to internal communications. But even for these slick marketeers translating pensions simplification changes is going to be a challenge. With only eight months until A-day, many employers are still looking at which employees to include in the process and the key information staff need to digest.
For a fashion retailer, a suitably slick presentation might get the message across, while a small manufacturer might use a casual walkabout to address workers. Whatever the method, clear and relevant communication is required to inform staff of the implications of the changes they will experience from next April.
A quick review of the national business pages is all it takes to be convinced of the high cost of pension schemes. And despite this cost, research reveals how little staff value such perks. Thomson Online Benefits’s survey Employee Rewards Watch 2005 shows that 38% of employers believe their benefits package is undervalued, and a further 31% think it is not well communicated.
While Alex Tullett, head of benefits communication at Jardine Lloyd Thompson, says: "To spend a heap of money and then not tell people about it seems to me to be a chronic waste of money. This is an opportunity to embed the scheme in peoples’ minds and get some added value."
With a raft of incoming changes, senior staff such as high earners and those nearing retirement age will be among those most affected. Mike Davis, director of the insured pensions practice at financial services provider HSBC Actuaries & Consultants, says communication should extend to all staff, as well as retired, deferred and potential members of pension schemes and trustees. The process will involve the HR department, and might extend to IT systems providers, external pension providers, unions, investment advisers, actuaries, auditors and lawyers.
Large employers with access to in-house expertise would do well to use it, says Charles Cotton, reward adviser at the Chartered Institute for Personnel and Development (CIPD). That could mean enlisting the marketing department to help out the HR team. "Gap, for example, used bright, fresh images which appeal to the fashion conscious. That wouldn’t work for Oxfam, where people would think money spent on slick marketing could be better used on a water pump in the Sudan. For medium-sized organisations [communicating the changes in-house] might not be an option. In that case, they might like to include a pensions communication consultant or independent financial adviser (IFA)," says Cotton. Employers could consider making use of the government’s £150 tax and NI-free allowance that is available for pensions-related financial advice.
Employers pitching a wide-ranging briefing might last five minutes before attracting the kind of eye-glazed response reserved for only the driest of topics. "If you just get a group of people and go through [all] the changes they fall asleep. Most of it’s not relevant, and by the time you get to the relevant bit they’re not interested," says Tony Newman, national employer solutions manager at Close Wealth Management (CWM). The moral of the story is to concentrate on the key issues for each target group.
The Finance Act 2004, Pensions Act 2004 and the findings of the Pensions Commission clearly demonstrate that the government expects us to work longer and save more. As a result, staff may need professional advice to make the most of more flexible secondary investment options. For example, from next year, employees will have the option of investing in such vehicles as employee benefit trusts, while the demand for self-invested personal pensions is expected to chart upwards.
Specific communication will differ depending on factors such as age, seniority, income and type of occupational pension. David Bird, consultant at consultancy firm Towers Perrin, says: "[Looking at pension] savings, defined contribution [schemes] are more important really. [People with] defined benefit [schemes] have the decisions taken away from them, they don’t have to think about it."
Topping the list of people who need to know how the changes will affect them are high-earning employees with funds near the £1.5m lifetime allowance cap. They will need to clearly understand about primary and enhanced protection available prior to A-day, so that they can make the best decision for themselves to ensure their funds do not attract unnecessary tax charges. Pension providers are scrambling to serve this market, with products such as pension projection modellers available to predict future income.
It is vital to get across to middle-aged employees the change to the minimum retirement age that will lift the age of pension scheme entitlements from 50 to 55 in 2010, especially if they are considering early retirement.
They may be interested to hear about the option to draw a pension and continue working – Sainsbury’s is among the first companies to adopt this policy.
There are a number of highly efficient tax options that will become available under the new pensions regime. But to make the most of them, staff will need careful education and advice from a qualified IFA. For example, CWM’s Newman sees the changes as an excellent chance to invest in a tax-free vehicle that mirrors the 401K plans of the USA. "The government knows it has created a massive loophole. Pension inheritance is tax-free. [Upon the employee’s death], the spouse gets the pension, and when the spouse dies, it goes to the children when they are 55. They can take 25% tax-free and add to the pension, and it can be passed through the generations."
Sound financial advice will also discourage workers from frittering away cash to face a miserable weekly income they have saved for years to avoid. Employees will have to evaluate how much they need on a weekly basis, and may find they need to boost contributions to the company defined contribution plan. Only then might they splash out on that holiday villa in the sun.
And there’s younger employees. In all probability, most will continue to pay scant attention to pension investment, concerned instead with paying off credit card debt, student loan repayments and trying to finance a property. The message for this group, according to Paul McGlone, principal and actuary at Aon Consulting, is brief. "They need to be told the old limits are gone, [and] that’s great news. This is much more flexible, and they can get on with their savings. There’s a lot of talk about people being affected in the future. Maybe they’re on £50,000 now and they are in their 30s. Who knows where they’ll be when they’re 60? You don’t know whether they’ll progress to be chief executive, or still be on £50,000, or working part-time, or [perhaps having] worked in 15 different jobs. It’s all very speculative."
Case Study: Emap
With 4,000 staff nationwide, and about two-thirds of workers aged under 35, media company Emap had its work cut out when emphasising the value of the company’s defined contribution (DC) pension plan. Group benefits manager Stewart Grant says the company wants to use A-day to emphasise greater pension investment choice and flexibility.
Emap recently sent all 2,200 members of its DC pension scheme information on pensions simplification, included in its mail out of regular benefits statements. "It went down really well," says Grant.
The publishing firm also specifically targeted members it believes may be affected by the lifetime allowance. Its benefits department uses the intranet, leaflets and personalised letters sent to home addresses, as well as an in-house pensions helpline.