Buyer’s guide to pension modellers (May 2010)

Pension modellers help staff to engage with their pension plan by allowing them to see the effect of different scenarios on their income in retirement, says Jennifer Paterson

Apart from salary, pensions are often one of the most costly elements of an organisation’s reward package. Yet factors such as a lack of knowledge and inertia can prevent staff from properly understanding a plan’s value. Pension modelling tools can help employees see the value of their pension plan and their forecast income in retirement.

Pension modellers carry out online calculations of pension fund values, enabling staff to adjust their predictions by modelling ‘what if?’ scenarios, such as altering annual contribution levels, their expected retirement age or investment strategy. Staff can then factor in details such as any previous benefits they have accrued, current fund values and the way future contributions will be paid.

Charlie Carrick, solutions director at JLT Benefit Solutions, says: “These tools give employees the ability to literally touch their pension, play with different modelling scenarios and start to understand the impact of investing more or less, retiring earlier or later, and adding in other pensions.”
Bespoke tools

Many pension providers include modelling tools with their products, and specialist software providers can build and implement bespoke modelling tools into existing plans.

Set specific questions

Modellers can be accessed via an organisation’s internet or intranet site. Employers can set specific questions for staff to answer before they can access the tool to ensure all pensions information remains secure. Paul McMahon, managing director of corporate benefits at Axa, explains: “The security element makes the user more confident about inputting personal data, enabling the modeller outputs to be more tailored and relevant.”

Modelling tools are available around both defined benefit (DB) and defined contribution (DC) plans. They are now offered around other benefits, too, such as calculating tax and national insurance (NI) savings made through salary sacrifice schemes. David Millar, corporate pensions manager for Friends Provident, says: “As well as pensions, employees will want to model their Isa [individual savings account] benefits, sharesave benefits, and see what the tax implications are for rolling them into pension plans or other long-term saving plans.”

However, there is some debate among providers about the usage of pension modelling tools. McMahon says: “The demand tends to be high and, where modellers are available, they are well used. The optimum usage of this type of tool tends to be by those approaching a specific milestone, for example, employees approaching retirement or looking to take benefits in the short to medium term.”

But Damian Stancombe, head of corporate DC for Punter Southall Financial Management, says: “The sad reality is, regardless of the quality, most people simply do not use them. I would take a 5% take-up as good. This low usage is due to apathy and the decision timeframe. The modellers are predicting 20, 30 or 40 years down the line. Simply more education is required, but my real worry is it is a generational thing.”

More communication and awareness around modelling tools may lead to a rise in their use. Millar says: “Online management of pensions is relatively low when compared to online banking but, of those who do use our online system, about 25% use the online modeller. A good modeller is the first step on a journey, but is not the destination.”


What are pension modellers?

Interactive tools that provide an estimate of the retirement income staff can expect. By changing variables such as contributions, retirement age and fund values, staff work out if they are on track to reach retirement goals.

Who has more information?

Pensions and benefits consultants can advise on the most suitable modellers for employers. There is a free modeller from the Consumer Financial Education Body at

The main providers include:

Almost all consultants, providers and advisers offer modelling tools. These include specialist providers such as Anthony Hodges Consulting, Clarity and Wealth at Work; pension providers such as Aegon Scottish Equitable, Aviva, Axa, Friends Provident, and Scottish Widows; and advisers such as Bluefin Corporate Consulting, Hargreaves Lansdown, Jelf Employee Benefits, JLT Benefit Solutions, Origen FS, Punter Southall, and Xafinity Claybrook.