It’s a choice many wouldn’t have much difficulty making: risk not being legally compliant and losing your job, or play it safe and avoid both of the above. This is the choice many HR personnel have come to face over the last two decades as a result of a barrage of pension regulation changes. Unfortunately the victim of such a preoccupation with remaining compliant has been pensions education.
“There have been so many changes that most HR professionals, even if knowledgeable, will always be concerned they are not knowledgeable enough,” says Guy Ellis, managing director at HR consultancy Courageous Workplaces. “Messing up would be a resignation offence but there is no chance of them being held responsible for an under-educated workforce long after they’ve moved on. The pension changes have been so costly that the only bit they could save money on has been cutting back on education.”
The problem has been particularly acute since the implementation of new pensions freedoms this April, which have effectively enabled those aged over 55 to dip into their pension pots as and when they like. The potential for employees to misunderstand or abuse this new flexibility is massive, but many smaller businesses are also still struggling to deal with the cost and responsibility of implementing pensions auto-enrolment.
Nicky Pattimore, group HR director at specialist technology outsourcer Equiniti, explains: “The whole pension freedoms issue is so complex that lots of people disengage. Compliance is about ticking the box but, in my opinion, the engagement piece is just as important. Employers that take time to understand what will be a future problem for employees and deal with it appropriately will enjoy better retention and a happier and healthier workforce in the long term.”
Even employers with contract-based schemes who do have the resources to focus on pension education can be easily put off by fears of being accused of giving personal financial planning advice, when they are only permitted to provide generic guidance. Debbie Falvey, defined contribution (DC) proposition leader at Aon Employee Benefits, says: “A lot of employers are so worried they take 10 steps back. They can give information but they must think about how they are giving it, and how they are controlling it, and whether they are giving risk warnings at the right time.”
Some experts feel that the Financial Conduct Authority (FCA) and The Pensions Regulator could be doing more to make it clear exactly what is and isn’t permitted. Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD), says: “There is a perception among our members that clarification and guidance in this area is lacking, and I think that the regulators need to up their game. In medium-sized organisations it’s more of a barrier to education because bigger firms can afford to employ or outsource to specialists who know the ropes.”
Nevertheless, although some HR directors will never look beyond compliance, others are gradually waking up to the importance of the educational challenge. Gavin Zaprzala-Banks, senior consultant at Punter Southall, has noticed an increase in interest from HR directors in financial education in the last 12 months, driven primarily by a desire to be perceived as an employer of choice in a reinvigorated job market.
“I have had interest from smaller as well as larger employers, as some SMEs with between 100 and 250 staff are taking a more paternalistic approach,” he adds. “One of the other benefits of keeping employees engaged is that it enables a smooth progression to retirement, getting around some of the problems caused by the scrapping of the default retirement age in 2011.”
Mark Pemberthy, director of JLT Employee Benefits, also stresses that there is no pattern linking a company’s size with its interest in pension education. The main driver is the attitude of the employer towards reward and employee benefits. Some regard them as a compliance issue while others are looking to add value for staff. Pemberthy emphasises the importance of being able to demonstrate to HR that financial education is capable of producing short-term benefits. For example, because money issues are one of the biggest causes of stress in employees’ personal lives, education can have a short-term impact on attendance and engagement.
“There’s increasing amounts of research being done, particularly in the US, on the business benefits of spending on education and engagement, and it’s showing a return of $3 to $10 for every dollar spent,” he says. “Employees enjoy higher levels of financial preparedness, place more value on the benefits the company is paying for, and are better prepared to avoid financial scams and bad decisions.
“We definitely have clients who see the strategic benefits. It’s often a question of helping them make the business case to get approval from the company and helping them to execute the strategies. Making education personal, timely and action-orientated is key, as people are much more open to information at the point at which it’s actually relevant to them. There is no point in talking in detail to a 25-year-old about their pension options for when they reach 55.”
For larger companies one option is to effectively outsource compliance and education by switching from a contract-based to a trust-based pension scheme. Agriculture, food and engineering company Carr’s Group is in the process of doing this for the vast majority of its 900 UK employees, and since this July has initiated a series of webinars and printed communications in conjunction with the trustees to explain the new scheme.
Gillian Dixon, group head of HR at Carr’s Group, says: “The educational side is a concern as you can never be certain people will attend webinars or read other communications, but trustees have the expertise necessary to help. A diverse range of ages makes the educational challenge all the greater and the external trustees have the tools to address this.”
For those sticking with contract-based schemes, the approach taken will depend on the demographic make-up and culture of the organisation concerned, but ideally education should involve a mixture of online and face-to-face contact.
The simplest way of solving the advice issue is to pay for employees to have one-to-one sessions with an independent financial adviser. This tactic is used regularly by the National Counties Building Society for its 150 UK staff. Take-up has been strong; the two days this January where access was provided to adviser support firm Tenet Group to explain a new group personal pension scheme were fully booked.
Vicki Webb, director of HR and training at National Counties Building Society, says: “The cost is worth it. We have had very positive feedback from it. Possibly the fact that our employees work in financial services makes them aware of the importance of educational advice.”
But many businesses feel they can’t afford this approach, or limit access to senior staff who need advice on issues such as the Lifetime Allowance or Annual Allowance. An alternative here is to get an independent financial adviser to deliver a generic seminar, and offer employees who want to follow this up with personal one-to-one advice the chance to book it and pay for it themselves. Or workers can be referred to the free educational services offered by the Money Advice Service and The Pensions Advisory Service, and many pension providers now offer free websites with useful information as well as videos and tools providing pensions modelling and calculations.
Indeed, many experts feel that these added-value provider services, which are increasingly benefiting from new technological developments, represent the most practical and cost-effective way of solving workforce educational problems. Employers do not risk giving advice because the provider is cognisant of the risks and is ultimately responsible.
So no matter what the pensions education budget, or rather how much of this budget has been hoovered up by remaining pensions compliant, there is little excuse for employers taking their eye off the pensions education ball. Or indeed little incentive.
As the above companies’ activities highlight, helping employees to understand a changing pensions landscape and what might be best for them, regardless of how that’s done, will pay dividends when it comes to the all-important matter of employee engagement levels.