Energy firm Scottish Power has two defined benefit pension schemes, with some 4,000 members but, since 2006, has required all new employees to join a defined contribution (DC) stakeholder pension, provided by Fidelity. This currently has around 2,500 members.
In February, the organisation introduced a new tool, called Guided Outcomes, provided by Hymans Robertson, which is specifically designed to tackle, and answer, the sort of questions and worries many employees now have in the wake of the pension freedom reforms.
Anne Harris, UK pensions manager at Scottish Power, says: “It is really difficult. On the one hand, pensions freedom has given employees a lot more choice. But, at the same time, that means potentially they have the freedom to make choices that could have really adverse financial repercussions for them.”
Although the DC scheme offers a choice of two default funds with different levels of risk, or the option to self-select funds, the challenge is, in many respects, much more basic than that, says Harris.
“Most employees really do not understand their pension that well. In reality, the bigger issue is less what investment choices they should be making, taking cash, income drawdown or whatever, and more are they putting enough money in in the first place?
“Our research has suggested around 80% of our DC scheme members are not putting in enough to give them a decent retirement income. And if [they’re] not putting enough in, it’s not going to matter what extra options or choices [they] have.”
The Guided Outcomes tool provides employees with a personalised statement showing how much they are saving and giving them a projection of what this is likely to mean in terms of retirement income.
The fact there is an appetite for this sort of employer-funded help is clear. Within days of the launch of the tool, nearly a third of the scheme membership had used the site, and more than 10% had made immediate changes to save more money each month.
“We’ve had an amazing response. We’ve had some people as a result even doubling what they’re saving,” says Harris.