I believe it is difficult for employers to ‘encourage’ any particular actions in relation to pensions other than greater comprehension. From greater comprehension comes the understanding of what an individual can do with every part of their retirement savings responsibilities, not just the consolidation of small pots.
We all tread the line of advice very carefully and encouragement can easily be misinterpreted to be the same, but focusing encouragement on better understanding, through targeted reading and seminars, is just a start, and can be built on to deliver something very comprehensive.
Employers can take a more subtle path, as GE has, to ‘sponsor’ consolidation, where the pots are being held in old trust-based arrangements. We have a number of such plans in which, due to harmonisation of our benefits platform in recent years, we no longer have any active participants.
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It is a useful exercise to review the population profile of such plans, as well as identify the current annual spend on operating costs, in order to determine what the total operating cost of the plan’s remaining lifetime might be.
The wind-up or closure of such plans is often expensive, so it is hard to make a business case to spend on such matters when they are almost viewed as ‘sleeping partners’. But the above approach often highlights the fact that lifetime spend is far greater, and usually underestimated, because of future compliance changes.
Compliance should also receive attention at board level. No employer wants to be associated with a plan that is found to be in breach purely because it is a forgotten obligation. With increasing governance responsibilities from The Pensions Regulator, it is more important for employers to make strategic decisions on whether these plans are worth not only the cost, but the risk, of keeping them.
We have found this more subtle approach to ‘encouragement’ to be successful. The communications associated with wind-up often prompts members to make consolidation decisions that they have put off, especially when the communications begin early on in the process, because these small pots are often all but forgotten. And, of course, members are usually happier when the decision has effectively been made for them.
Kerrie Rowland is senior manager, European pensions and benefits, at GE