PENSIONS INSIGHT
Achieving good pension outcomes
In the second of three articles, Alan Morahan, managing director, DC Consulting, Punter Southall Aspire, looks at how the employers of seven fictional friends could help them achieve their retirement dreams
L ast month featured Doc and Happy feels good about pensions. Now fifty, he’s beginning to think about when he might retire. He’s pretty sure he’s on track for a reasonable income in retirement. Happy has a deferred defined benefit (DB) promise from a previous employer, which at the last count was estimated to pay him around £20,000 a year from age sixty. His last three employers all offered him a defined contribution (DC) plan instead of a DB one, but he’s been shrewd enough to negotiate decent employer contribution payments and paid additional contributions on top. Happy also came into a ‘pot of gold’ recently that might enable him to use up some previously unused annual allowances. He now needs assistance pulling all his plans and information together, so he can make informed choices about his immediate future. Though there are useful tools on the website of his current DC scheme, Happy is frustrated that these don’t allow him to see what his overall position is. Equally, there isn’t much information on the carry forward rules, so he’s asked his employer to provide access to additional support. Happy’s employer has had several older and more senior members of the team approach them for help with retirement planning and received requests for cash in lieu of pension as some are well-funded against the lifetime allowance, which is reducing their interest in the pension plan due to their inability to continue funding at current levels. Having spent so much time, effort and cost on running the pension plan the employer needs to consider providing members access to additional Grumpy; this time it’s Happy, Sleepy and Dopey.
support to deal with these requests and develop a formal strategy. Putting in place a structured self-help and support programme will alleviate many of Happy’s concerns and form a valuable part of future succession planning. ...when it comes to pensions, blissfully ignorant and trusting... Sleepy is totally disengaged with pensions, but has at least been auto- enrolled. He has very little in the way of pension contributions before automatic enrolment (AE) but the good news is he still has time to do something about it. Sleepy’s employer currently offers the minimum AE contributions, which alone are not going to generate a very large pot. They need to start getting him engaged in his pension, which they can do in two ways. Firstly, they could make sure their pension plan is competitive, efficient and offers values for money. The phased increase of contributions in April 2018 is an ideal time to review the company contribution structure by benchmarking it against their competitors. The company should also review the contribution levels as part of their overall remuneration package and check members are getting the lowest charges possible. Finally, they should review the default fund performance and suitability. They should check such things as: the level of risk and if this is suitable for the membership and their lack of engagement; what the lifestyle position is (annuity, drawdown or cash); is the fund manager performing well; and is the overall performance high or low.
Communication is key. These reviews might bring up no changes or a complete change. Either way, the process and outcomes should be reported back to Sleepy and his colleagues. Group presentations or face to face meetings may be the best approach. Sleepy needs to be advised what sort of retirement he would have at his current contribution levels and what action he could take to improve his situation. Dopey has made some bad decisions about pensions. He was badly advised to transfer money out of a DB scheme and invest some of it in a pineapple canning factory, on the promise of a very high rate of return. Dopey also decided to opt out of his employer’s generous AE scheme after speaking to Grumpy in the canteen, who told him that pensions aren’t worth bothering with. Dopey is like many people when it comes to pensions, blissfully ignorant and trusting others to tell him what to do, as pensions can be difficult to understand. Pension scams are on the rise and with lack of education from employers many people will fall victim to them. A communications programme using simple, easy to understand dialogue on important pension issues could help people like Dopey avoid such scams. With AE a relatively new concept many employees are finding themselves in a pension scheme for the first time. Like Dopey, they need someone to explain simply how it all works. Had Dopey understood that he would more than double his pension contribution each month with the income tax relief, and of course his employer’s pension contribution, he would have realised that his employer’s pension scheme is very good. Q
| Professional in Payroll, Pensions and Reward | October 2017 | Issue 34 42
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