Employees in multiple pension schemes can find it hard to get an overall view of their retirement income, says Ceri Jones.
Creating meaningful pension forecasts for employees in multiple schemes is a tricky task. In particular, where employers have closed a defined benefit (DB) scheme to future accrual and staff are building up defined contribution (DC) pots under a replacement plan, it is difficult to marry the two into one comprehensible statement because they will be based on different variables.
Terry Ritchie, manager of Trustee Solutions at Pinsent Masons, says the ideal solution is to decide on one overarching figure represented as a percentage of salary. “Pensions are complicated, and the danger is that employees will be presented with a thick wad of material and be unable to see the key information,” he says.
“Pulling information together from different parties and spending time manipulating it are hard nuts to crack, and it will all be for no purpose unless the statement is understood. Such a figure can alarm people, however.”
Providing a consolidated statement is voluntary at present, but The Pensions Regulator (TPR) has become increasingly proactive about DC regulation and is pushing for better employee communications. It is calling for every DC member to receive an annual benefits statement, but it is concerned that benefits are not calculated accurately. In addition, many schemes fail to maintain adequate banking and investment records to enable the correct identification of the relevant contributions and assets.
In its supplementary statement Understanding and managing your hybrid scheme, issued last October, TPR said that from November 2011 it would be asking additional questions in its annual return for DB and hybrid schemes, so it could monitor schemes more effectively. It defines a hybrid scheme as one with a component of DB and DC, even if entirely different members belong to each.
Many schemes already offer benefit statements that consolidate DB and the state pension scheme, using data from the Department for Work and Pensions (DWP). However, the DWP’s combined pension forecast service is currently suspended while its IT systems are updated to reflect the changes to state pension age announced in the Pensions Bill 2011.
One or two specialist pensions software providers and communications specialists offer systems in which a person can enter details from previous employments to obtain a consolidated forecast, but these are a rarity. For example, Xafinity Claybrook considered developing a modeller that consolidated a person’s accrued pensions from various employments, but concluded that it was too cumbersome, and that employers would struggle to input all the details.
Shilling Communication has developed modellers that enable staff to enter benefits accrued in other pension schemes, that can be used to look at alternative scenarios regarding early retirement and tax-free cash.
Such modellers can include DB, DC, career average revalued earnings (Care) schemes, additional voluntary contributions (AVCs) and the state pension and any uplift offered by an employer’s scheme, all wrapped up into one graphical display.
Alex Thurley-Ratcliff, head of innovation and business development at Shilling, says: “The most effective way to encourage staff to look at pension communications is to make it relevant for them personally. The best situation is where a personalised benefit statement is produced within an overarching communications strategy.”
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