The first consideration is that an employer must be crystal clear on exactly why the changes are being proposed. Furthermore, this rationale must be expressed in simple, non-technical language, and in a concise form - a few sentences perhaps. It is also vitally important that senior business leaders take full ownership of the pensions change and ensure line managers are brought into the process from day one. Without this clear line of communication, management is at serious risk of producing conflicting messages that will only cause confusion and suspicion. If employees believe they are not getting the whole story they will quickly draw their own conclusions, which will colour all subsequent attempts to explain what is proposed.
The second thing employers must get right is the consultation process. There is a statutory process that organisations must conduct if they are proposing any pensions change, but to be effective, the consultation process should probably go further than is legally demanded. In situations where employers hold reasonably strong relationships with unions, discussions should be held in advance of formal consultations to thrash out the proposed changes in greater detail. On the other hand, where there is a lack of trust between unions and employers, there is a greater need for employers to ensure that they:
a) Invite employees to join a consultation process to establish a formal governance process ahead of the announcement;
b) Ensure key decision-makers from the business attend the consultation to accelerate the decision-making process - there should be total clarity over what level of authority each party involved in the process has;
c) Ensure any communication around pensions change is timed to cause minimum damage to the business through industrial action
Although this consultation period should help employers avoid any disastrous outcomes when the pensions change is officially announced, it is impossible to be 100% sure what the reaction will be. For this reason, sponsors need to have a system in place for quickly reacting to a strong negative response. An agile decision-making process is crucial here; ensuring that the organisation can respond to challenge within a tight timeframe.
What the events of the last week have taught us is that pensions change should not take place in isolation. Pension teams must engage with employee relations teams up front to find out what else might be on the agenda and look for ways to tie the communication into other issues. If possible, employers should also structure their initial offer so there is room for some negotiation, albeit perhaps small. This will help companies reach a satisfactory resolution while protecting engagement as much as possible. Where concessions aren't a viable option, employers are encouraged to open a frank discussion with employees to provide the necessary business context behind the pensions change.
Looking to the future, employers will continue to face two competing priorities. Firstly, the need for cost and risk savings from generous pension plans is not going to go away. The second, as illustrated by this week's events, is that negative employee sentiment can threaten drastic action and the perhaps bigger issue of long-term damage to employee engagement. The upshot is that effectively managing pensions change is a mandatory skill for modern businesses. This is simply something that companies cannot afford to get wrong.
Peter Routledge is head of the UK Pensions and Employee Benefits Practice at Towers Perrin
