Pension reforms mean more employees looking for advice on retirement issues
Saving for retirement is high on employee’s agenda
Employees' desire for guidance continues to be prevalent due to the greater choice afforded to them following the introduction of the pension freedoms in 2015, with a third (33%) of respondents saying that staff now want and need more guidance around their pension decisions at retirement. The pension freedoms give staff over the age of 55 greater freedom in how they access their pension savings, with scheme members now able to take their pension wealth as a lump sum, drawdown or as an annuity.
The increased choice available to staff appears to have positively impacted engagement with their pension scheme, which remains the second key way in which the freedoms have impacted employees and employers. This year, just over a quarter (28%) said this was the case.
In response to the freedoms, 23% of respondents to this year's research have introducing a financial education programme for all staff, with the same percentage carrying out a pension engagement exercise, suggesting staff are better equipped with knowledge. These two options have topped the list of changes respondents have made since we introduced this question when the reforms came into effect.
The top ways pension freedoms are impacting staff and organisations
Sample: All respondents (178)
More staff want and need guidance with regard to their pension decisions at retirement 33%
Staff are more engaged with their pension scheme 28%
More staff want more guidance with regard to pension savings throughout their career 26%
Younger staff are more more engaged with their pension scheme 20%
Staff are now recognising the value of their pension 20%
More staff are now planning for their retirement or are willing to consider their retirement plans 20%
They have made no difference: staff remain apathetic about saving for retirement 18%
Staff are increasingly likely to be saving more 17%
Staff are starting to see the workplace as a facilitator or workplace savings 15%
Staff are better prepared for retirement 14%
Pension Wise is too basic for employees' needs 12%
Do not know 11%
They have made no difference: respondents already offer a comprehensive at-retirement package for all staff 8%
They are prompting respondents to review their working relationship with their pension provider 7%
They are little too late for employees approaching, or at, retirement 6%
None of the above 2%
Other 1%
The changes respondents have made in their organisation in response to the pension freedoms
Sample: All respondents (230)
They have introduced financial education programme for all staff 19%
They have carried out a pensions engagement exercise 19%
They have altered their defined contribution pension investment choices to reflect the more flexible options at retirement 14%
They have introduced financial education for staff approaching retirement 13%
They have introduced access to one-to-one finance advice for staff approaching retirement 9%
They have introduced a financial education programme for those approaching or at the annual or lifetime pension allowance limits 7%
They have introduced access to one-to-one financial advice for staff approaching, or at, the annual or lifetime pension limits 7%
They have referred all staff to Pension Wise 6%
Other 10%
None of the above 38%
They have introduced an annuity referral service 2%
Auto-re-enrolment is a costly affair
More than a third (37%) of respondents have seen, or will see, costs rising in relation to pension auto-re-enrolment, according to this year’s research. Almost one-third (27%) have used this as an opportunity to introduce wider communications around pensions and pension savings. Meanwhile, almost a quarter (24%), have brought in additional systems to comply with regulations.
This year saw a large number of employers in the UK going through auto-re-enrolment for the first time, which prompted more than a third (39%) of respondents using the regulation as an opportunity to change their default fund, as well as 33% of respondents seeking to review or change their existing pension provider, and just under one third (31%) to review or change their pension strategy.
How pensions auto-re-enrolment is impacting respondents’ organisations
Sample: All respondents (161)
It has or will increase costs 37%
They have introduced, or will introduce ,wider communications around pensions and pension saving 27%
They are using it as an opportunity to review or change their existing pensions provision 27%
They have brought in, or will bring in ,additional systems to enable us to comply with requirements 24%
They have introduced or will introduce financial education 22%
They are appointed, or are planning to appoint, an additional provider to enable them to comply with requirements 9%
They have appointed, or are planning to appoint, an additional adviser to enable them to comply with requirements 8%
It has prompted them to introduce an at-retirement strategy to complement their pension scheme efforts 5%
They have not yet auto-re-enrolled their staff 4%
Other 11%
How respondents are using auto-re-enrolment as an opportunity to review or change their existing pension provisions.
Sample All respondents that are using auto-re-enrolment as an opportunity to review or change their existing pension provisions (39)
To review or change their default fund 39%
To review or change their pension provider 33%
To review or change their pension communications strategy 31%
To review or change their investment options 23%
To review or change their pension advisor 10%
Other 23%
Opinion remains split on alternative pension contributions
April’s 2016’s reductions to the annual and lifetime pension allowances impacted between 1% and 5% of staff in just over a third (40%) of respondents’ organisations. A further 11% said between 6-10% staff were affected, while 17% said none of their employees were impacted. This remains broadly in line with previous years.
From 6th April 2016, the annual allowance for those earning more than £15,000 was tapered down to a minimum of £10,000, where the lifetime contribution for lifetime allowance for pension contributions moved from £1.25 million to £1 million.
The percentage of respondents that have decided not to offer an alternative form of remuneration has remained consistent year on year. Where respondents do offer an alternative, cash remains the most popular option.
What respondents offer as an alternative to pension contributions for staff who reach their annual or lifetime allowance limits
Sample: All respondents (159)
They do not offer an alternative 39%
Cash 37%
They do not know 19%
Other 6%
Share options 4%
Contributions into an individual savings account (Isa or other investment vehicle) 3%