How employers can help employees make informed decisions about their pensions
At a time of economic and financial uncertainty, and with changes ahead for UK employers, the time is right to think about the pensions employers provide to employees. Often unsure of the options and choices before them, many more people will be turning to their employer for help and support.
From 2012 companies will be required to enrol employees automatically into a qualifying workplace pension scheme, and we want to encourage them to think carefully about what this means and how you can start to be more engaged with your pension provision now.
HR has an important role to play in influencing the way employees save and the way they think about pensions, and in helping people build the savings they need to enjoy their retirement.
With all of this in mind we have recently started a campaign that focuses on helping you to answer the questions you may face.
The changing landscape
We have been seeing an increase in the level of defined-contribution (DC) provision for some years now and this is likely to continue. The 2012 pension reforms alone will see up to seven million more people able to save for their retirement, many in DC schemes.
Members bear a much greater responsibility for the outcome of their pension savings in DC scheme and this increases the importance of making informed decisions that are right for the individual. For members to make the most of the pension they are offered, they need to have all the available information.
Making a difference
We know that pensions can be perceived as complicated and recognise that employees need guidance.
As an employer, particularly where there is a DC contract-based scheme in place, you have the opportunity to make a positive difference to the decisions employees make.
Research from the Association of British Insurers ABI shows that employees trust their employers more than many other sources of information about pensions and believe their employer will keep their word. It also shows that employer promotion of pension options actually boosts take-up of workplace pensions.
At a time where we are all facing the prospect of a longer and healthier retirement, we must seriously think about how we will provide for ourselves in that period. And HR can play a pivotal role in giving employees greater information about this and help them achieve a more comfortable retirement.
Saying the right thing
We do however recognise that it can be difficult to know what you can and cannot say about pensions, especially to avoid being seen as giving financial advice.
To help you to talk about pensions we have created a leaflet, in conjunction with the FSA, which sets out the dos and don'ts.
The guide answers questions like: Why should I bother providing information to my employees about pensions; What can I tell my employees about my pension scheme; What can I tell my employees if they ask me if it is a good idea to join the pension scheme; and What could I be doing when employees approach their retirement dates?
We consulted extensively with employer representatives in producing this leaflet and it has also been awarded the plain English crystal mark.
Impacting on governance
In contract-based schemes employers can have a positive impact on scheme governance. Members are likely to benefit if the scheme is reviewed periodically, and where there are no trustees to oversee governance, you can fill this role.
There are no set rules to prescribe how governance is best delivered but we have guidance that gives examples of employer engagements including management committees, reviews by human resources and reviews by an independent financial adviser.
With the level of DC provision likely to increase in the coming years, particularly in light of the 2012 reforms, many more employees will bear greater responsibility for the outcome of their pension savings.
As an employer you have an opportunity now to help your employees to think more carefully about their retirement savings and to make more informed decisions about pension provision.
And we are here to help. You can find our guide on our website. You can also find more information about your role in our employer information resource, Pensionwise.
Tony Hobman is chief executive of The Pensions Regulator