Communication is the key to guide staff through a changing pensions landscape, says Simon Fletcher, client relationship director at Johnson Fleming
The pensions landscape continues to evolve, with further changes planned, but not clarified, by the new coalition government. The industry itself is undergoing transformation, with mergers in both the adviser and provider communities, and the introduction of changes to the way advisers can be remunerated.
We do know that compulsory auto-enrolment of employees into an employer-sponsored pension scheme will still go ahead, but whether the national employment savings trust (Nest) will proceed as currently proposed is under review. This year’s research shows that over 74% of employers think auto-enrolment and compulsory employer contributions are a step in the right direction, but that this alone will not solve the pensions crisis. Encouragingly, more than one-quarter of employers would like to be in a position to introduce auto-enrolment ahead of October 2012. We all wait to see whether the proposed timescale for the introduction of Nest and auto-enrolment sticks.
With two-thirds of employers feeling that the proposed charging structure for Nest will deter them from using it, the quality and success of their own pension scheme becomes even more critical. More than 60% of employers do not currently measure return on investment in their scheme; we believe making this assessment is vital, if only because of the typical size of businesses’ spend on pensions.
Higher-rate tax relief
The legislation restricting higher-rate tax relief for high earners from 2011 is also under review, with the government looking at alternative ways to achieve a similar aim, while removing unnecessary complications. One thing the research does highlight on the high-earner issue is that no clear strategy has yet developed, suggesting help and guidance are still needed on how best to meet the needs of this group.
We continue to see the closure of private sector defined benefit schemes – both to new and existing members – with over 60% of employers that offer a DB scheme planning to do this over the next 12 months. More than 76% of employers now have a defined contribution plan as their main scheme, and with this comes the issues of investment choice, member communication, take-up and governance.
Looking at member education around investment options, online and printed communications are most prevalent (used by 42%). Group seminars are used by over 30% and only 14% offer employer-paid one-to-one sessions with an independent financial adviser. Our own survey of scheme members, Web-based solutions, how beneficial are they?, shows the methods of communication they value most are one-to-one sessions (67%) and group presentation (31%).
Listen to membership
Scheme handbooks (1%) and websites (1%) are seen of least benefit. Perhaps we need to listen to our membership more to make sure we really are getting value for money from schemes. In terms of scheme take-up, employers are trying many ways to boost membership, with the most popular being targeted communications, offering access to financial education, matching contributions, salary sacrifice and simplified joining. All are equally good methods, but the trick is to match the methods you use to the segments of your employee base you want to target, because each of us responds to different things in different ways.
Some 28% of employers felt affordability was a barrier to staff joining their scheme and 22% thought other financial demands were an issue. Interestingly, over 27% felt they should proactively educate their staff about pensions but do not, and over 70% do not make provision for staff to take advantage of tax breaks around pensions, such as rolling in shares from share schemes or making bonus sacrifices. This all suggests we need to help employees to better understand and manage their finances through effective education and by offering more forms of saving via the workplace.
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