Financial Advice supplement 2005 – Update

Burlington helps staff with IFAs
Oil exploration firm Burlington Resources is using financial advice to help staff understand a number of changes to its saving arrangements.

The US-based company is swapping its occupational defined contribution scheme for a group personal pension to save costs.

But, it will not change the amount of contributions it offers staff. Employees receive 12% through the non-contributory element of the scheme and they can then make additional voluntary contributions (AVCs) if they wish, of which the company will match up to another 6%.

However, if employees do not wish to save extra into the pension scheme they can enter money into a medium-term Isa.

HR director Sue Ferren said deciphering these options can often be difficult for employees that are used to searching for oil. She said: “Pensions can be a minefield. I deal with pensions a lot here and I still find that every once in a while something comes up that I don’t understand so how an average [employee] not dealing with it on a day-to-day basis understands it, I don’t know.

“[So] the financial adviser talks to them about our pension and savings plan; they tell them about the advantages such as pension contributions which are free from tax,” she added.

And the changes to the scheme are not intended to cut the benefit provided. Ferren said she wanted to update a pension that was introduced in the early 1980s. “[The GPP is] more flexible, the charges are lower so if we can reduce those charges then there’s more money going into the employees’ pension pot.”

Financial Services and Markets Act 2000
Employers are now able to encourage workers to join their occupational pension schemes following government reforms at the beginning of this year.

Following a review of the Financial Services and Markets Act 2000 employers that contribute to a stakeholder or group personal pension and do not make direct money from this will be exempt from the Financial Promotions Order, which previously stopped employers from offering staff any encouragement to save.

With around three million people not saving enough for retirement and over 4.5 million employees having access to an occupational scheme but not having not joined it, the government decided that now was the time to make it easier to promote workplace pensions.

Ian Luck, associate director at independent adviser firm Smith & Williamson, said that this would make a real difference. “The inference was employers had to be extremely careful about giving any form of advice, they could only give pure information. But now that’s changing so they can encourage employees to join their arrangements.”
this reform is expected to give employers a real boost when it comes to increasing workforce takeup of their stakeholder and group person pension plans.

Some 15% of organisations offer financial advice to all their employees.

According to Employee Benefits’ own Benefits Research 2004, 9% of organisations also offer some form of financial advice through a flexible benefits plan and 10% of employers offer it on a voluntary basis.

Savings apathy
A quarter of UK citizens are saving nothing, with 70% of those who do save refusing to set aside any more. Research by independent body IFA Promotion also shows that the number of spendthrifts, mainly women, has risen from 11% to 19%. In times of debt 22% of people turn to their family for advice.

Tooting the whistle on pensions
Acme Whistles has offered its employees access to independent financial advice in a bid to kill scepticism around savings.

The manufacturing company, which makes whistles for sporting and military use, gave its 60 staff the chance to talk to an adviser about the best saving option for them free of charge.

Simon Topman, managing director at the company and one of 15 members of the government’s Employer Task Force on Pensions, said: “It’s rather sad to say but there is a scepticism from some employees around employers offering pensions, there’s the sneaking suspicion that they’re getting a kickback somewhere.

“So I felt that if you give someone independent advice, not by you as employer, that would instil more confidence in employees that it was legitimate,” said Topman.

Acme Whistles, which has a group personal pension where it pays 7% of salary and the employee pays 3%, has signed up around two-thirds of employees, and it hopes to increase this.

He said: “Financial advice would also enable them to take a wider view, most employees including the people here, have limited financial options. It’s nice for them to know if they’re better off in an Isa or a Pep or maybe even put their money in the building society because they’re too old to put money into a pension. It would be beneficial to give people the chance to take a more sensible view of their circumstances.”

Topman added that while pensions are still a hard sell, as a small organisation every new employee signing up is a bonus.

ABI pensions tool
Nearly three-quarters of the UK’s workforce believe their finances are in need of improvement, with 57% admitting they never review their pension arrangements.

And research by the Association of British Insurers (ABI) shows that more than one-in-ten would like access to an online pensions calculator to do this. It is timely then that the industry body has just launched such a tool.

Employees will now be able to work out how much they will retire on using the device, which can take into account amounts from existing pension arrangements and future contributions.

The ABI’s figures also highlight that 12% would like to have access to an independent financial adviser, which may help more organisations to see that financial advice is a sought-after benefit.

Some 32% of the workforce see debt payments as their biggest financial resolution of 2005. However, not all employees will be able to benefit from such tools or advice; 1% would like more time to play Richard and Judy’s ‘You say, we pay’ gameshow on Channel Four.

Tony Herbert, pensions and savings policy adviser at the ABI, said that the tool should help people who have made it their new year’s resolutions to sort out their finances.

l For more information on the Association of British Insurers’ pension calculator visit
DWP tracing service
The Department for Work and Pensions (DWP) is introducing a retirement planning service to provide better advice for workers.

It is launching a programme that will make it easier for employees to trace pensions via the government department, something that was previously done by the Occupational Pensions Regulatory Authority (Opra).

There will be a new telephone hotline that will enable employees to receive pension forecasts and get independent and impartial advice. There will also be a related website that will provide similar information.

The DWP, which set out its aims in a guide last year titled ‘Simplicity, security and choice: Informed choices for working and saving’, hopes to introduce its plans over the next couple of months.

One-to-one IFA sessions prove a big hit with staff
Employees prefer receiving financial advice in one-to-one meetings rather than in group presentations.

Research by independent financial advisers Winterthur Life says that employers find that they see a 26% increase in pensions take-up when employees receive financial advice on their own compared with 16% following presentations with colleagues.