What are pension modelling tools?
They are interactive tools that can calculate an estimated future retirement income based on factors such as an employee’s current contributions, desired retirement age, and investment strategy.
Where can employers get more information?
Who are the main providers?
Almost all consultants, providers and advisers offer pensions modelling tools. These include specialist providers such as Anthony Hodges Consulting, Clarity and Wealth at Work; pension providers such as Aegon, Aviva, Axa, Friends Life, Scottish Widows and Standard Life; and advisers such as Bluefin Corporate Consulting, Hargreaves Lansdown, Jelf Employee Benefits, JLT Benefit Solutions, Punter Southall and Xafinity, among others.
Interactive pension modelling tools calculate various factors to give employees a realistic picture of the income they can expect to receive in retirement, says Alison Coleman
The current economic climate, ongoing financial pressures, forthcoming pension reforms that will introduce auto-enrolment and compulsory contributions, and the removal of the default retirement age are all making employees increasingly keen to find out what they stand to earn in retirement. Pension modelling tools provided by their employer offer an ideal way to identify whether they are on track to obtain their desired income.
Modelling tools enable staff to see their future retirement income based on current contributions, and how this is affected by changing factors such as their contribution level or intended retirement age. In their simplest form, these tools are interactive calculators that can be accessed by staff either via the website of their pension provider or through a link on their employer’s intranet or internet site. Some modellers, such as JLT Online Benefits’ version available through its Benpal system, are also available as a smart phone application.
Choose levels of risk
Employers can also offer more bespoke tools, incorporating elements of financial education that enable staff to choose the most appropriate levels of risk and the funds to invest in. Ken Anderson, principal consultant at employee benefits provider Xafinity, says: “As we move towards a defined contribution-led pensions world, people are realising there are no real guarantees, so they need to keep an eye on their pension plan. With high-end modelling tools, they have the information to make decisions about their investments and adjust their contributions when necessary.”
As well as the value of their employer’s pension plan, modellers can factor in income from previous pension funds, the state pension and, in some cases, income from other savings vehicles, such as individual savings accounts (Isas).
For modelling tools to be fully effective and engage staff, they must be part of an integrated pension communications strategy. Ross Jackson, Aegon’s head of marketing communications, says: “This could include one-to-one pensions advice, but other options, such as workplace seminars, are an effective way of raising awareness about the scheme and the available support.”
Cost of modellers can vary
Pension providers or benefits consultants will often bundle modelling tools in with their products. They may also offer modellers within other benefits plans, such as flexible benefits. This means the cost of pension modellers can vary.
Smaller employers that operate pension schemes from older platforms that do not support modelling tools may be able to get an upgrade from their provider, says Robin Hames, head of technology at Bluefin Consulting. “[It] may have more up-to-date options that are only offered to new customers. If that is the case, the employer should request an upgrade,” he says.
Employers can also provide modellers alongside other forms of financial education. Tom McPhail, head of pension research at Hargreaves Lansdown, says: “Employers that empower their staff to make informed decisions about how to achieve their target income at their chosen retirement age will see a return on investment through increased take-up and engagement.”
Read more buyer’s guides