What are pension modelling tools?
These are interactive tools that help staff understand what they need to save for their retirement and how to achieve their goals. The tools calculate an estimated retirement income based on factors such as retirement age, current contributions and investment strategy.
Who are the main providers?
Almost all consultants, providers and advisers offer pension modelling tools. These include specialist providers such as Anthony Hodges Consulting, Clarity, Staffcare and Wealth at Work; pension providers such as Aegon, Aviva, Axa, Friends Life, Scottish Widows, Standard Life; and advisers such as Bluefin Corporate Consulting, Hargreaves Lansdown, Jelf Employee Benefits, JLT Benefit Solutions, Punter Southall, Thomsons Online Benefits and Xafinity, among others.
Pension modelling tools can give employees a practical demonstration of what they need to do in order to achieve a satisfactory income in their retirement, says Jennifer Paterson
A bit like a satellite navigation (satnav) system, a pension modelling tool can show employees where they are in their journey to retirement. Once it knows their desired final destination, it can point them in the right direction and tell them how long it will take to get there.
James Gilbert, pensions consultant at Thomsons Online Benefits, says: “No journey is ever going to run perfectly smoothly. People need to look at the satnav a number of times as they take wrong turns or get stuck in traffic, just to ensure they are still on track.”
At their most basic level, pension modelling tools require employees to enter data, such as their salary, projected retirement age and details of all their pensions. Some tools enable staff to input more detailed information, including whether contributions are offered through salary sacrifice, current inflation figures, up-to-date assumptions for investment funds or changes to the annual management charge. Users are then directed to a projection of their retirement income, which can be saved.
More bespoke modellers can also help people choose which funds to invest in. “Most users will have no idea where to invest, let alone how something is going to behave,” says Gilbert. “The tool can help them understand how certain types of investment behave and to pick something that is appropriate.”
Some tools can send emails or texts to employees to alert them of changes in their investments. Jon Bryant, benefits consulting director at JLT Benefit Solutions, says: “Some systems will let users know, via email or text, when one of their investments moves by more than, say, 2.5%.”
Details of wider savings options, such as corporate individual savings accounts (Isas), can also be input into some tools.
Pension reforms education
Modellers can be used to help to educate staff about the pension reforms that start to take effect this year. They can show people the impact of opting out after being auto-enrolled and will estimate the cost of delaying pension saving. Gilbert says: “The tools are intrinsic to the success of auto-enrolment because individuals need to be educated about saving.”
Employers can offer pension modelling tools to staff via their intranet site, through a flexible benefits portal, or as an integrated part of the pension provision. Some modellers are available in a format that can be accessed via smartphones or tablet devices.
Modellers can also be integrated with an overall HR platform. Stuart Bailey, manager of national partnerships at the Money Advice Service, says: “What we are seeing now is that all these tools are feeding into each other. The main benefits sites will be able to come to employees and say ‘we have noticed it is your birthday this month, have you thought about upping your pension contributions?’ They will become quite a bit more interactive.”
Free modellers are available via industry bodies such as the Pensions Advisory Service and the Money Advice Service. Bailey adds: “We work with pension providers and employers to offer our resources free of charge and, if needed, to find ways to integrate tools within their websites.”
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