By Lydia Fearn, Head of Pensions & DC Investment Consulting at Barclays Corporate & Employer Solutions
Lydia has extensive experience of pension scheme investment consulting, in both defined benefit and defined contribution pensions. As Head of Pension & Investment Consulting she is responsible for developing the Barclays DC pension proposition and views. She advises a range of clients on their investment strategy as well as wider DC pension issues in order to meet the needs of their workforce and aiming to deliver better outcomes on retirement.
The clock is ticking – are you and your members ready for April?
It will be interesting to see what the impact of the Freedom & Choice legislation will have on both pension schemes and the workplace following April. However, I think we can safely say that the lure of cash in the hand will be very enticing for some. Clients have already commented that their members are requesting more information about the new flexibilities and with the press continuing to highlight these changes, it is important for us to help our members understand the implications of any decisions they make.
For example, will Pension Wise be enough to provide members with the information they need? The Association of British Insurers spoke out, saying it believes the government, and industry are not yet fully prepared for the hundreds of thousands of savers who are looking to make use of the new rules from April 6th. From my experience, members do know changes are coming but are not completely clear on what they are or how best to make use of them.
Interestingly, the release of the latest ONS figures on workplace pension schemes show that there has been a notable increase in the number of people now part of pension schemes, going from 50% in 2013 to 59% in 2014. Obviously, it is important for members to understand what they are saving for and how they can access their savings in the future.
However, for trustees and plan sponsors, there is a long list of issues and priorities to deal with. Some companies and trustees are still going through auto enrolment, some are dealing with the complex issues of DB schemes and others are trying to make sure their scheme is fit for purpose in light of the new flexibilities.
My view is that members are the most important aspect for trustees and plan sponsors to focus on right now. It is critical that schemes are fit for purpose in order to meet the needs of the members, but preparing the schemes themselves is also important and I will consider ways in which businesses can achieve this another time.
Trustees and plan sponsors should aim to help their members understand what they need to save in order to achieve the standard of living they want in retirement. This needs to be balanced against other priorities in employees’ lives such as day-to-day costs and saving for things like a mortgage – which could be a driver for the need to access their pot in the first place.
Our Steps towards a Living Pension report shows that to live comfortably in retirement, people need an average of £17,500 a year across the UK. Using this as a benchmark will allow members to get an understanding of what they are on track for. The evidence shows that communication is key to success, in fact, 85% of members would welcome guidance from their trustees or plan sponsors. We can provide more information on what members need to do in order to achieve the standard of living they want.
Consequently, they are able to make more informed choices about their pension savings and take actions that are right for them.
Due to auto enrolment, many members will have defaulted into a scheme and into their investment and contribution choices.
Given the new flexibilities, it is clear extra guidance will be needed from trustees and plan sponsors to help members focus, as many will be overwhelmed by the choices on offer to them as they move into retirement.
We also believe it is important to consider the different generations in terms of their views and needs. Each generation has different priorities and varying attitudes towards saving and the importance of contributing to their pension. This is also true of the different media they respond to. Therefore trustees and plan sponsors should consider their communication plan, taking into account timescales and media. From our research we have seen that even Generation Y prefers face to face meetings when making financial decisions – despite being a very tech savvy group!
Complementing your communication with personalised emails, letters and desk drops will help make your messages all the more powerful. Keep the messages short and to the point, make them engaging and ensure members have somewhere to go if they need additional support.
The new pension reforms will have huge implications on all of us in the pensions industry, but very much more so for our members. There will be the immediate affects for those who will be looking to retire in the near future, and we have a pressing responsibility to help these members achieve a good understanding of the new flexibilities. For those at the beginning or middle of their careers, guiding them throughout will help towards achieving a clearer goal for their pension savings. With less than six weeks to go, there is a lot to do, and it brings with it challenges but also I believe a lot of opportunity to engage with and help our members.
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