I predict that this will be the year of driving the hard bargain. Not only is the economic malaise putting pressure on all budgets, but this year will also see commission-paid advisers trying to win as much new pensions business as possible ahead of a change in commission rules under the retail distribution review (RDR), while the arrival of the pension reforms and auto-enrolment is causing all employers to review their offerings (see How to get extra value from benefits providers).
All changes present challenges, so benefits managers need to have their wits about them to make sure they get the best deal for their organisation and do not find themselves tied into paying for services in unintended ways that come back to bite them and their staff.
RDR has been a big talking point among corporate advisers in recent years, but will probably only now come onto the radar of most employers. We cover the topic in detail (see Retail distribution review will clarify payments for advice), but the bottom line is that after 31 December 2012, pension providers will no longer be allowed to pay commission to advisers that sell their products. A number of providers and advisers have already changed their remuneration models, while others aim to make the most of the current system while they can. There are plenty of arguments for and against, but the important point for employers is to be fully clued up before deciding which route to take.
Going with the current provider-paid commission model will allow an employer to offer a pension and perhaps financial advice at little or no cost to the organisation, but this is likely to result in higher annual management charges for individual employees, eating into their investments. However, this might be considered a lesser crime than not offering a pension, or financial advice, at all. For me, the test is: are the remuneration choices transparent to all and how do staff feel about it?
The issue of annual management charges on pensions has been playing out in financial circles recently, from the National Association of Pension Funds to broadcast and print media, as well as Twitter. High charges eat into the amount contributed to pension pots. I agree that contribution levels and length of scheme membership have a bigger impact on retirement savings, but to ignore the price staff pay for a product simply does not cut ice any more.
This is an area where employers should be driving a hard bargain during this time of change.
Debi O’Donovan, editor
Follow on Twitter @DebiODonovan
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