Take-up of group personal pensions lags behind other types of occupational schemes, but Vicki Taylor questions if this should be so and looks at revamping their appeal
If you read nothing else, read this …
- Group personal pensions (GPPs) typically achieve lower take-up rates among employees than some other types of schemes.
- Employers could boost staff take up by making contributions to a scheme and not setting employee contributions too high.
- Staff can take the plan with them when they move firms and can vary their contributions providing scheme rules allow them to do so.
Group personal pension schemes (GPPs) typically achieve lower employee take-up rates than trust-based defined contribution (DC) and defined benefit pension plans. However, there are a number of measures employers can take to turn this around.
Quite often, because GPPs are essentially personal plans and typically offered by small to medium-sized employers rather than large organisations, the company won’t contribute to them. However, Andrew Dawson, head of sales and marketing at Gissings, believes that employers could achieve higher take-up rates by making contributions and not setting the amount required from employees too high. "If the employer is prepared to make contributions and not require any contributions from the individual, then invariably the take-up is going to be pretty close to 100%," says Dawson.
The higher the contribution required from employees, the lower the take-up rate is likely to be. "If [you ask for a] contribution of 5% or more, that for a lot of people is a significant consideration, and you would then find that take-up levels might drop [to] 50% and might even go as low as 30%," he adds.
There are also plenty of aspects about GPPs that, if communicated properly, might encourage staff to join regardless of the contributions from the company. Jonathan Watts-Lay, a director at JPMorgan Invest, explains that, overall, take up of UK pension schemes is pretty low so a good communication plan is necessary to ensure staff understand what their retirement situation will be if they don’t start saving.
A strong communication plan could make a 90% take up achievable. New joiners are a particularly good target because employers could see take-up rates rise to 95% among this group. Angus Jones, managing director at financial advice firm Clarity, says: "The time it takes to re-educate someone when they have been [at the firm] for two years is huge. It is perfect to get them on the way in. Don’t treat [pension education] as a cost, think of all the benefits you [will] get, [including] better pension take-up and educated staff who understand their perks better."
Helping employees to see where their contributions could come from, for example, such as finding a better mortgage deal and putting the savings into a pension, can be an effective strategy. "The first thing that is attractive about a GPP [is] it belongs to you as an individual, unlike defined contribution and defined benefit schemes. If I leave [a company], I can continue to pay into that scheme even if I don’t work [there] anymore," Dawson explains.
Another key benefit, besides typically low admin costs, is that employees can vary their contributions if the scheme rules allow. If the employer does not permit this to be done through payroll, staff can send money directly to their plan provider. In addition, GPPs do not require a board of trustees, which greatly diminishes the regulatory burden on employers.
Following the publication of the White Paper on pensions reform last year, there have been concerns that employers will move away from offering GPPs in favour of moving to the proposed national system of personal savings accounts, due to be introduced in 2012.
Dawson, however, believes this will have little effect on employers offering access to GPPs because both types of schemes will serve the same purpose provided GPPs are, or can be adapted to be, as good as the new system. But he adds that GPP providers with a low market share may review whether they want to continue to offer the product.