If handled correctly, staff can view a pensions restructure with positivity, says Victoria Furness
With frequent reports of employers’ multi-million pound pension fund deficits and the gloomy retirement predicted to be facing most of us, it’s unsurprising most employees will respond negatively to the words ‘pension restructure’.
Matthew Blakstad, reward and pensions communications specialist at PricewaterhouseCoopers, says: “Employees’ concerns are obvious. The first thing anyone asks about any reward or pensions-related change is, ‘what does this mean for me?’ Or, ‘can my employer do this to me?'”Pensions can be a deeply emotive issue for employees. So the news that an organisation intends to change its arrangements is unlikely to be welcomed, particularly if it involves a move from a defined benefit (DB) to a defined contribution (DC) pension scheme. Naomi Cooke, GMB national pensions officer, says: “Our members regard it as deferred pay, so it’s second only to pay settlements.”
But a pensions restructure doesn’t always have to spell out bad news for employees, so employers need to ensure staff are fully aware of the facts if they wish to gain a better reception to the change. Mark Rowlands, corporate benefits development director at Axa, explains: “Restructures can take different forms. These could range from a fundamental redesign of the pension scheme, typically moving from one form of DB scheme to a defined contribution DC scheme, or it could be an adjustment of the terms and conditions relating to a DC scheme.”
Nor does a pensions restructure always have to produce a negative outcome. When Fidelity National Information Services embarked on a pensions review (see case study opposite), Julie Chell, the company’s HR director for Europe, Middle East and Africa (EMEA), expected trouble during a meeting with an employee not known for his complaisance. Instead, he heaped praise on the new pension scheme and the transparent way in which it had been introduced to staff. “He said it was the best thing the company had ever done and that he understood so much more about his pension as a result,” she explains.
Key to making the change a positive experience for employees was the company’s honest and open communications strategy. “I wanted to ensure we did the best by our employees so when they came through [the change], they felt better informed. We achieved that by taking our time with the project and making sure that we communicated clearly and very personally with each employee,” says Chell.
Most internal communications specialists agree on the importance of not rushing through a pensions restructure. Even if they wanted to, however, there is legislation in place that would prevent employers from doing so. The Information and Consultation of Employees Regulations 2004, for example, require employers with more than 100 employees to inform and consult them about issues taking place in the organisation. From 6 April this year, this obligation will extend down to organisations with between 50 and 100 employees. In addition, the Pensions Act 2004 requires employers to consult with scheme members for a period of at least 60 days if they are considering changes that might affect their future pension rights.
Mark Taylor, a partner at law firm Jones Day, explains: “Some employers confuse information with consultation. They think if they have informed their employees of something that’s tantamount to consulting. But employers have a duty to consider feedback and respond, even if it’s to say, ‘thanks for your input’.”
Many organisations would automatically consider this to be standard good practice during a pensions restructure. Consultation also means being open with employees about the changes afoot and involving staff representation groups and trades unions, as well as pension scheme trustees, early on in discussions, if only to anticipate many of the concerns that the workforce will have. “The best chances of success and easy transition are situations where we’re involved as early as possible, not just through information but in assessing the need for change,” says Cooke.
When Aon UK closed its DB pension scheme, initially to new entrants in 1999 and subsequently to future accrual in 2007, its senior management worked closely with a consultative body composed of elected representatives from across the organisation, known as the Aon Forum, as well as a newly-created Members Consultation Forum, which also had employee representatives drawn from the various DB schemes that the organisation had open at that time.
Charles Willy, Aon’s UK communications director, says: “The Members Consultation Forum met regularly and was voted a great success by the representatives in terms of the opportunity it provided for the firm and elected staff representatives to consult widely.”
Also key to the company’s communications strategy were pensions clinics, roadshows, a dedicated intranet site and a DB helpline.
Most successful communications strategies will rely on a mixture of channels to target different groups of employees, using consistent messaging and tone of voice to get their point across. Chris Hopkins, director at internal communications agency Caburn Hope, explains it is also important to address individuals rather than the needs of the organisation. “If employees read about what the business needs to do, they’ll think it’s nothing to do with them. But they’ll be engaged if the communications is about investing in their future,” he says.
While written communications inevitably play an important role in keeping employees informed during a pensions restructure, face-to-face communication can also help to sell the move to staff. Mark Bingham, director at benefits communications specialist Secondsight, says: “Where a change will be quite big, you cannot beat sitting down with members of staff individually and helping them through the process, so they come out of it knowing they made good choices.”
Although expensive, he believes one-to-one meetings with employees – preferably with an independent financial adviser – can go a long way to appeasing most disgruntled employees, even those who are moving from a DB to DC scheme and fear they might see their pension contributions fall. “Most people want certainty, and the main thing about a DB scheme is that when you get to retirement, you know what you’re going to get. But in a DC scheme, they will probably have no idea, which is why you need to help them understand what they going to get out of the new scheme, based on different levels of contribution,” says Bingham.
Interactive pension modelling tools also provide a virtual way of representing the changes to an employee’s pension arrangements. But not everyone is convinced of their appeal. Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development, says: “People often rave on about pension modellers and they can be effective. But just sticking one on a website won’t make much impact.”
Employers also need to be careful to ensure they don’t enter the territory of giving financial advice by dishing out pension predictions, as only those registered with the Financial Services Authority are permitted to do so.
With more legislation in this area than ever to worry about, pensions communication has become a complex exercise. But sticking their head in the sand is not an option for employers. Those that attempt to push through changes without consultation and open communication, risk not only the wrath of the regulators, but also of those the pension scheme was put in place to attract and retain in the first place.
Tips for selling in a restructure
- Keep it brief Employees only want to know what they need to know as too much information can be overly distracting.†
- Personalise the messagesThe more an organisation can target information at individuals, the more buy-in it will achieve.†
- Be open and honestPeople respond better to being told the truth, even if it is unsavoury.†
- Promote the benefits, not the featuresThe message about pensions ought to clearly explain the benefits of membership to employees, rather than just the design details of the scheme.†
- Focus on financial awareness For younger employees, the idea of saving for old age can be irrelevant and a big turn-off. Instead, emphasise financial awareness and planning, of which pensions is part.
Fidelity pensions revamp aids retention
Following its acquisition of credit card processing firm Certegy in 2006, Fidelity National Information Services consolidated its three existing pension schemes into a new group personal pension (GPP).
The company worked with Secondsight to create a communications plan that would help employees understand what the changes meant for their future pensions provision.
This involved using written materials, group presentations and one-to-one consultations with independent financial advisers. The latter was the most intensive part of the communications campaign. However, Julie Chell, the company’s HR director for EMEA, says: “It was the most effective as it was [for] each employee.” Following the change, average employee contributions increased from 3.1% to 6.8% and when staff were asked if their pension would have an influence on their decision to take another job, 56% said they would now think twice about leaving.
In addition, 93% of employees in the GPP choose to use a salary sacrifice arrangement to contribute to their pension fund in order to reap further tax and national insurance savings.