For years advisers, pension providers and employers have wondered how to get the majority of staff interested in their pensions.
Now many don’t want staff to get too interested – in case it drives up costs or causes staff to make poor choices in the current recession.
We are seeing several different tacks taken by employers – depending on if they are of a parternalistic bent, purely cost driven, or a simply happy to offer benefits provided they can see a return on their investment.
For example, just a couple of months ago a benefits manager of a large bank expressed his concerns to me that staff will stop contributing to their pensions. The doom and gloom of falling stock markets coupled with a tightening of personal finances was making some consider taking the cash salary rather than watch it go into a pension that was performing poorly.
I don’t I need to spell out to a Corporate Adviser audience why, in many cases, this would be an unwise move by many staff.
Hopefully, that powerful force – inertia – will prevent most people doing this unnecessarily. So this may be a reason for employers and advisers to think carefully before drawing too much attention to pension contributions.
And inertia will probably come to the fore again when it comes to staff trying to switch investments. There is a fear that employees may be tempted to switch asset classes without getting advice – thus potentially compounding their losses.
The other major trend we are seeing emerge this year, also involves employers stopping all forms of communication about pensions. Many financial directors want to put a cap on pension costs and last thing they want is any more staff joining the scheme, especially if there is an employer contribution involved. Several advisers have told us that they have been told to halt workplace communication roadshows that had been planned for early 2009.
Conversely, many employers who are already paying pensions contributions and costs are taking an opposing view in order to maximise their return on investment. In these firms communication is the name of the game because HR is having to prove that staff really do value the pension scheme. FDs no longer simply accept that they have to pay pension costs, they want to know exactly how it is benefiting the business. Fortunately, straightforward workplace advise can increase employee perceptions of the value of their pension sky high.