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Pensions...it's a people thing

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<b>Responsibility for pensions is shifting from finance to HR in many organisations, according to new research from Hewitt Bacon & Woodrow and Human Resources. Jane Simms reports </b>

Pensions can be boring to read about and hideously complicated to explain, but as an issue its not going to go away. And amid rising levels of concern about pensions shortfalls, and the repercussions on all of our working lives, the way we think about them and their impact has changed radically. Even five years ago, pensions seemed to have little connection with the person it was designed to benefit. It was a sure thing, a file of yellowing financial papers left untouched in the bottom drawer until the next house move. Now, however, a pension is very much a people thing. New research conducted jointly by Hewitt Bacon & Woodrow, the pensions and benefits consultants, and Human Resources magazine, confirms that responsibility for pension scheme strategy, management and communication has shifted from finance to human resources in most organisations over recent years.


The many negative press stories on the subject are raising awareness of the importance of saving for


retirement among individuals who have traditionally taken their pension for granted. While many firms are reducing their own pensions costs and risks by shifting from defined benefit to defined contribution schemes, they are attempting to turn employees heightened sensitivity to their advantage by using their new pensions arrangements to position themselves as caring employers.


This shift in emphasis from the cost to the company of providing pensions towards the benefit to the individual has inevitably drawn HR more closely into the whole debate. The survey therefore set out to establish exactly how the role of HR has changed and the precise nature of its involvement in company pension schemes.


Nearly two-thirds of respondents to the survey, conducted in June, said that pensions are managed within the HR department, compared with just 15% of organisations where the schemes are managed by finance.


Nearly three-quarters said that HR currently has either significant involvement in or total responsibility for pensions. And a larger chunk of respondents 84% believed HR should be even more involved than it is at present. Furthermore, 63% said that HR plays a significant role in positioning pensions within the organisations overall corporate strategy, with another 12% claiming this was solely HRs responsibility.


When asked what part HR should play specifically, nearly half thought that advising senior management on the type of pensions the organisation should have was HRs most important role. The second most important function was judged to be making decisions on how to communicate pensions benefits to employees, while the third was being a source of information on the subject.


But while pensions professionals, compensation and benefits specia-lists and HR staff themselves were in broad agreement about HRs involvement and understanding of pensions, the opinions of the other professionals surveyed including managing directors, finance directors and company secretaries was less enthusiastic.


While pensions tends to sit within HR in most organisations, many pensions professionals still have a dotted reporting line to finance. Given that the pensions professional in effect has two masters,


I would have expected more of a power struggle between them, comments Chris Noon, head of the HR effectiveness group at Hewitt. I think the survey finding that different groups have different pensions priorities simply indicates that people are focusing where they should be another positive development compared with 10 years ago.


The research showed that while pensions professionals saw their main challenge for the coming year as dealing with the implications of the Inland Revenue consultation


document on pensions, their HR colleagues expect to be preoccupied with integrating pensions into overall HR strategy.


Or at least thats the theory for the latter. While all respondents want changes to pensions arrangements


to be driven by strategic considerations, they admit that most of the recent changes in their own organisations have been precipitated by more immediate, external forces such as rising costs, government regulation and the new reporting standard FRS17, which forces companies to disclose the current market value of their pension fund on their balance sheet.


Russell Martin, HR director at Prudential UK and Europe, believes that in an area like pensions,


where you need to draw on deep technical expertise, a certain amount of tension between pension specialists and HR generalists is inevitable. But it is also extremely positive, he says. Our pensions specialists, who sit within HR, occasionally question our expertise, but that is part of the natural dynamic tension you get when you have specialists and generalists trying to reach the best solution. Whats more, adds Martin, having individuals within the same team who are concentrating on different aspects of pension provision actually helps the organisation meet both its tactical and strategic imperatives.


And rather than being buffeted around by events, the Prudentials decision to move to a defined contribution scheme earlier this year, Martin explains, was driven by the organisations strategic view of the future and its philosophy of giving its staff choice about the mix of benefits they receive, rather than a knee-jerk reaction to outside forces. It was a very proactive and strategic move, he says. We deliberately excluded pensions from the scheme we introduced in January that allows individuals to choose their own benefits, because we believe pensions are core and that there should be minimum provision in place for staff.


Stuart Stephen, pensions and benefits director at Barclays, agrees that is possible to be strategic even in a difficult scenario for pensions. You can react and be strategic at once, he says, explaining that while Barclays new pension scheme, announced in July, takes account of government guidelines as outlined in last Decembers pensions Green Paper (Security, Simplicity and Choice) and Octobers tax consultation paper, it was driven very much by our need to do something that was important for us as an employer and valuable for our staff.


In 2001 Barclays reviewed the defined contribution scheme it had put in place four years earlier only to find that investment volatility and low levels of employee contribution meant that the scheme was unlikely to deliver the forecast benefits. The companys new cash balance plan, called afterwork, guarantees members a pot of money at retirement. The minimum contribution rate is 3% of pensionable salary, and for every year of service the bank pays the employee 20% of pensionable salary.


We see ourselves as an employer of the best people and were determined that our pension should be seen as an important part of an excellent employment package, explains Stephen. We decided to tackle the issue of volatility by sharing some of the risk with employees and rebuilding peoples confidence in pensions. By creating a more reliable pension we believed we would give people a greater incentive to save.


Notwithstanding HRs growing involvement in helping to formulate pensions policy and strategy, the research showed that HR sees its biggest ongoing challenge and strategic opportunity as communicating the value of pensions to employees. As the Prudentials Martin says: Organisations have grown increasingly frustrated that although pensions is such a big cost to them, few employees have seen it as a


tangible benefit. The current high profile of pensions gives us the perfect opportunity to get employees to recognise the value of what we are giving them. So the communications agenda should be driven by this


more positive message rather than the more reactive one of seeking to dispel the bad news stories in the press.


Sally Bridgeland, an associate at Hewitt, believes that where HR professionals might be limited in their influence over the design of the pension scheme because of the continuing dominance of the commercial imperative, they can add real value by building the new pension arrangements into the strategic fabric of their corporate objectives and communicating them as part of the overall benefits package.


Even so, the research found opinion divided on who is currently responsible for pension scheme communication, with each group of respondents believing it held the greatest claim to this area. Some 47% of pensions professionals felt communication fell within their remit, with just 14% believing it to be HRs responsibility. Meanwhile, 36% of HR professionals felt it was their responsibility, with one fifth judging it to be the role of pensions professionals. And 43% of compensation and benefits professionals said communication was their responsibility although 27% thought it also fell under the remit of pensions professionals.


Bridgeland explains these findings simply as different groups having different communications roles to play, rather than being indicative of any sort of turf war. She says: For example, the general strategic


message how the pension fits into the overall benefits package and why that makes you such a great employer should be handled by HR. Pensions professionals will be more concerned to communicate the implications of pensions decisions for example, how much the employee should save and where they should invest it, along with the different range of benefits options available within the pension scheme. However, she continues: The important thing is that whoever is doing the communicating, the message comes across as integrated.


Yet the survey suggests that this is not always the case. While 79% of respondents said they believed pensions should be communicated as part of the overall benefits package, two thirds admitted that they currently communicate pensions as a separate, stand-alone benefit. At Barclays, group pensions drives the communications strategy for the scheme, but works closely with internal communications and with HRs dedicated branding person to ensure that


pensions are communicated as part of the companys overall rewards package. We view the communication as the second most important aspect after the design of the scheme, says Stephen.


Afterwork was launched to staff in September after a marketing campaign befitting a new consumer product launch. A teaser campaign in May was followed by a hard message about the importance of saving for retirement and information about how individuals can help themselves, before the actual launch. Printed communications are backed up by information on the intranet and a dedicated pensions helpline. We rolled afterwork out in small chunks rather than all at once, which would have been off-putting, says Stephen. The strategy seems to be working. The transfer date is the beginning of January 2004, but 85% of staff have already agreed to contribute to the new scheme. Some 65% of employees made no saving to the previous scheme.


Though pensions is an increas-ingly complex and specialist area which demands specialist input, HR will continue to play a significant role, predicts Stephen, because pensions is a people thing. As such, he says, HR needs to become more expert: Pensions is on more and more board agendas and it is the HR director that the board increasingly turns to for guidance and comfort. But within three or four years, when many of the current pensions issues will be resolved and most schemes will be ticking along, he expects HRs involvement to fall off again.


Robert Ingram, vice-president, HR, at Cap Gemini Ernst & Young, is not so sure. I have spent much of my time over the past 18 years on pensions issues in a number of companies, he says. I see pensions as one of the seven or eight core skills I need in my job. Ingram offers some


words of wisdom on reconciling the strategic versus tactical debate that appears to be exercising so many


HR directors. You cant react to external pressures such as stock-market volatility, legislation and inflation as though they were isolated, one-off events, he says. The economic environment is in a constant state of flux and you need to be constantly adapting your strategy to take account of it, within the context of understanding that pensions are a long-term commitment that calls for a continuous and evolutionary approach.


But while the survey suggests that HR directors are reasonably knowledgeable about pensions even their colleagues admit it Noon at Hewitt has a slight concern about their awareness of the implications


of the current wave of pensions reform. The ramifications of the Green Paper are significant for compensation generally, not just pensions, but the HR community didnt raise this as being a significant issue in the research, he says. Does this suggest some kind of communications breakdown?


And while HR emerges from the research with much credit for


taking on responsibility for this difficult area, it would have been interesting to delve into the relationship between HR and pensions professionals and the pension scheme trustees, suggests Martin. We have a pensions specialist who sits within HR, but he has a dual responsibility to the company and to the trustees, he explains. He has to reconcile the interests of both sides, which is a tricky position to maintain, and generates more differences of opinion than those between players who are essentially on the same side.


In any case, it seems that pensions is an issue the HR professional is going to continue to have to grapple


with. While many could be busy fire-fighting for some time yet, Noon believes pension reform and the prospect of


an ageing workforce provides the ideal catalyst for HR directors to stand back and take a strategic look at the


way they provide pensions to their staff. Dont just react, he says. This is a great opportunity and a really


important watershed.