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HRDs warned over quality of pension schemes

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HR directors need to “wake up” and ensure they offer good quality pensions as more employees take up workplace schemes through automatic-enrolment, a pensions expert has warned.

Henry Tapper, First Actuarial director and founder of advice website Pension Playpen, said changes in pensions over the past five years had made managing them more complicated, and HR mangers were increasingly overseeing schemes alone.

Tapper told HR Magazine a change in the law that means employers will automatically have to offer staff a workplace pension scheme meant employees would pay closer attention to the value of their pensions.

“HR mangers have found that what were previously great retention and recruitment tools have now become a major problem for them,” Tapper said.

“Over the last five years, as we’ve moved away from what you want to do as a company to what you have to do, they’ve turned from being an ‘HR plus’ to an ‘FD minus’. They’re a big negative to the finance department.”

Tapper said companies of all sizes were already experiencing dissatisfaction with pension schemes for different reasons, including regulation changes and the recession.

But he said changes provoked by auto-enrolment would require HR professionals to change their attitudes.

“For everyone there’s this big issue that large numbers of new employees are going to be enrolled in pension schemes for the first time and they’re going to want to see value for money,” Tapper said.

“So the quality of what is done is going to become more important. As contribution rates increase, people become more inquisitive, more sceptical and then, ultimately, more critical.

“If you don’t get the pension piece right as an HR manager you will find in three or four years time that a lot of these issues that might be dormant today are more important.

“HR managers – wake up!” he continued. “It’s not just auto-enrolment, but the actual quality of the pension is important too. If you don’t know you’ve got a good quality pension scheme, you’ve probably got a bad quality pension scheme.”

Tapper admitted HR managers needed to get their heads around really complex rules. He recommended HR leaders source external, specialist advice to help them provide good information to employees.

He said HR managers should review the pension schemes they currently offer to ensure they were providing good value.

In particular he warned against pension schemes that promised “free commission-based advice”, which often resulted in extra charges for employees when they left the employer.

“HR managers should be putting effort into advice at the right point – not at the sales point when employees join the scheme, but at the back end when they leave,” he said.

Tapper’s concerns were backed by Retirement Assured head of annuities Peter Quinton, who called for pension providers to offer compulsory advice to employees.

“Retirees simply do not understand the retirement process, what an annuity is, or what other options are available,” Quinton said.

“We need to make it compulsory for pension savings providers to educate their members and provide risk warnings to them prior to taking benefits.”

He agreed this had become increasingly important since auto-enrolment was introduced.

Figures released by the Pensions Regulator this month showed more than 2.9 million employees have been auto-enrolled since the scheme began in October 2012.