As we start a new year, there is still a feeling of trepidation about what 2010 will bring. Last year was one of recession, job losses and cost-cutting. Many of us sincerely hope this year will not bring more of the same.
But with increasing consolidation in the market, leading to more mergers and acquisitions among employers and benefits providers, and the public sector to still get into cost cuts, I can’t help feeling the employment market and the economy will be gloomy for some time to come.
Despite this, there has been a strong focus by employers on keeping staff motivated and engaged. This common-sense resilience is being played out carefully, with reward managers considering what they are prepared to spend their budgets on, which benefits they really need to cut and which ones they should retain to avoid disharmony in the workplace.
But the biggest expensive elephant in the room remains the pension – it overshadows all other benefits significantly, even when employers have moved away from trust-based defined benefit schemes to contract-based defined contribution plans.
The costs of implementing new contract-based schemes have been kept reasonably low for some employers because their advisers have been paid commission by the pension plan providers, rather than the employer paying a fee for the service. As has been said in this magazine before, this does have a cost advantage for the employer, but it restricts product choice to providers that pay adviser commission (fewer have been doing this in recent years) and the commission is clawed back by the provider through high annual management charges, often paid for by the employee. Many in the industry feel this is wrong and will disadvantage the employee and the employer in the long run.
The Financial Services Authority (FSA) appears to agree. As we went to print late last month, the FSA released a consultation document on banning provider-paid commission on group pensions, including group personal pensions, stakeholder pensions and self-invested personal pensions from late 2011. Read our report here and use our online comment board to tell us how you think such a move will affect employer-provided pensions.