In 1975 most employers still offered generous defined benefit (DB) pension schemes. Whereas today, for many organisations DB has become simply unaffordable, due to a variety of factors including people living longer, an increasing regulatory burden and changes in the labour market, not to mention the global financial crisis and resulting quantitative easing. Defined contribution (DC) pension schemes have now moved towards centre stage, largely helped by the Government’s successful pension reform, Automatic Enrolment – our 2014 annual survey showed that for the first time active membership of DC schemes outnumbered that of DB schemes.
Automatic enrolment has re-established workplace pensions as the best way to save during our working lives to fund retirement and it’s vital that as an industry we don’t lose this momentum. Very soon more than 100,000 small employers (with 30 employers and under) every quarter will start automatically enrolling their staff into a workplace pension scheme.
It’s great news that more and more employers are offering their workforce a pension, but just as larger schemes did many small employers are finding the workloads and options overwhelming. In the next few weeks and months we will be looking at ways to help these smaller employers work through the Automatic Enrolment process as smoothly and painlessly as possible.
Freedom and choice
In April of this year the new ‘Freedom and Choice’ in pensions reforms were introduced, promising savers greater flexibility in how they access their retirement savings from age 55 – including taking it all as cash or withdrawing it bit by bit. With the compulsory retirement age now abolished, this is just one example of how the lines are blurring between work, retirement, pensions and savings.
The new pension freedoms have been largely well received. Most savers (81%) told us as part of our Understanding Retirement research that they think the new flexibilities are a good idea. However they are also aware of the challenges and risks they now face when managing their savings in retirement. There are also some misconceptions. Of the savers we surveyed who expressed an interest in drawdown, over half (53%) believed this option would offer them a guaranteed income in retirement, with a quarter believing there were no risks involved.
What’s also notable is that far from rushing to immediately withdraw all their money, buy an annuity, or take drawdown, most DC savers (56%) aged 55-70 are yet to make a decision about how they would like to access their retirement savings, or are waiting to see how the market develops. It’s important we help these savers make the most of the new freedoms.
Earlier this year the NAPF partnered with WEALTH at work to launch a new financial education service designed for pension schemes to offer their members, as well as for individuals approaching retirement.
The seminars have been designed for anyone approaching retirement in the next couple of years, or thinking about accessing their pension pot in the near future. They address the issues people should think about when considering their finances in retirement, such as the sources of income at their disposal, how to be tax efficient and the impact of risk.
At the coalface
HR practitioners are increasingly finding themselves at the coal face of all these changes. The HR department is usually the first port of call for employees when seeking help with pensions, posing new questions for business and human resources: How can we help employees balance the competing pressures of family, money, work and health? How can we ensure staff members get the most from freedom to manage their retirement incomes? And how can we as an organisation build on the success of Automatic Enrolment?
These questions and more will be considered at the NAPF Annual Conference next week (14-16 October 2015) in Manchester, at which we will start the debate about how to help people work longer, save more – and live better as well.
In partnership with HR magazine, the NAPF Annual Conference will include a stream dedicated to the pensions and employee benefits space. The stream will cover a range of important topics such as pension freedoms six months on, DC benefit design and governance, as well as current hot topics such as Big Data and gamification – all from the perspective of the HR and employee benefit professional.
As the pensions and lifetime savings landscape evolves, so too must the HR professional. Join us next week to find out more.
Joanne Segars is chief executive of the National Association of Pension Funds (NAPF)