The pension gap, the difference between the retirement income an individual would like and what they are on course to achieve, is as old as pension provision itself.
Getting staff to recognise this gap is a challenge, but employers can now call on interactive pension modelling tools to help get the message across.
Tools vary greatly. Some are fairly simple, designed to provide a snapshot of one particular pensions issue, such as the Money Advice Service’s (MAS) automatic-enrolment toolkit, which helps staff decide whether they will benefit from staying in their workplace pension, based on factors such as age and earnings.
Other tools offer more holistic, ongoing modelling, for example to help defined contribution (DC) scheme members explore various ‘what if?’ scenarios and choose the most appropriate funds to invest in. Some tools can even send emails or texts to alert employees when investments move by, say, more than 2.5%.
The shift from defined benefit (DB) to DC schemes, which offer staff much less certainty about the income they will receive in retirement, has increased the need for pension modelling tools, particularly for schemes that allow members to make their own investment choices.
Increased demand for modellers
Legislative changes affecting pension entitlements have also increased demand for modellers. For example, The Pensions Advisory Service (TPAS) saw a sharp rise in the number of people using its Saving for Retirement online planner in October 2012 and January 2013 when the government announced changes to the state pension. Also, auto-enrolment will see a whole new cohort of employees making decisions about occupational pension savings for the first time.
Employers can offer pension modelling tools to staff via their intranet site, through a flexible benefits portal, or as an integrated part of their pension provision. Some modellers are available in a format that can be accessed via smartphones or tablet devices.
At the most basic level, there are free standalone pensions calculators from the likes of TPAS and MAS, as well as through the publicly accessible websites of many insurance companies, banks, consultants and advisers.
Many employers buying a flex scheme or off-the-shelf DC pension will often have automatic access to modelling tools as part of the package.
Pension calculators are also part of the financial education toolkits that many employers offer as an employee benefit.
Many employers will also have access to a modelling tool as part of the service provided by their pensions consultant.
Of course, modelling tools will be effective and engage staff only if they are part of an integrated communications strategy.
308,000 people had been auto-enrolled by the end of March 2013, according to initial data from The Pensions Regulator.
What are pension modelling tools?
The term covers a variety of interactive pension calculators designed to help employees make decisions about pension savings, typically taking into account their current savings level and setting this against their target retirement income.
Who are the main providers?
Providers include most pension consultants, as well as specialist advisers, including: Anthony Hodges Consulting, Aon Hewitt, Capita Employee Benefits, Clarity, Equiniti, Hargreaves Lansdown, Jelf Employee Benefits, JLT Benefit Solutions, Punter Southall, Staffcare, Thomsons Online Benefits, Wealth at Work and Xafinity. Pension providers including Aegon, Aviva, Axa, Friends Life, Scottish Widows and Standard Life also provide pension modellers.