Employer profile: Capital One

Capital One is using employee inertia on pensions to automatically increase the contributions staff make to their retirement pot, says Nicola Sullivan

Few organisations will emerge from the recession unscathed, particularly those in the financial services industry. Banks and lenders will find it challenging to reposition themselves after the economic downturn, during which they have been criticised for much of the irresponsible lending to consumers that helped to trigger the crisis.

Several credit card providers are trying to mitigate the resulting increased lending risk by raising interest rates. One of these is Capital One, which last month confirmed it would double the interest rates on some of its cards as part of an effort to buffer itself from the poor economic conditions. This is despite the Bank of England base rate being held at 0.5% since March 2009.

However, Capital One is also working to strengthen its business by developing several new credit card products that are designed to encourage responsible borrowing. For example, the financial services firm has launched two new credit cards that are designed for financially-savvy consumers.

Capital One’s philosophy of ensuring its products remain fresh and relevant to the market also extends to its benefits strategy, where it realises the importance of freshening up programmes to engage staff.

For example, last year Capital One reviewed its group personal pension plan (GPP) to ensure it continued to meet the needs of its relatively young workforce, which has an average age of 35. The scheme, which has been in place for 12 years, is non-contributory for those staff who have opted out of a newly-introduced strategy to boost retirement savings.

Matching contributions

At the GPP’s most basic level, staff are given a 4% employer contribution. But if the employee also contributes 4% of salary, Capital One will match 50% of this amount, thus adding a further 2%, bringing the total contribution to 10% of salary.

If the company’s financial performance merits it, employees’ pension pots can also be swelled by a further contribution, ranging from 0-3% (with the amount depending on the level of the firm’s financial dependence).

As part of last year’s pensions review, Capital One formed a pension governance committee that looked at the levels of employees’ pension savings and their likely returns at retirement.

Working from the premise that the Capital One workforce should be encouraged to save more towards their retirement, the governance committee decided to introduce an arrangement, whereby employee pension contributions automatically increase by 1% each year unless staff choose to opt out.

The change, which went live this month when the first contribution increases will be deducted from employees’ salaries, intentionally coincides with the company’s annual pay increments.

Making use of staff inertia

Andy Brumwell, head of HR at Capital One, explains: “An employee’s personal contribution goes up by 1% each year unless they opt out. The key difference with that is we are using inertia to help increase the amount staff are putting forward for their retirement. [Normally], inertia means the employee keeps [contributions] at the same level.”

Capital One’s implementation of automatic contribution increases follows its introduction of auto-enrolment for all staff back in 2008.

This puts the firm well ahead of the game when it comes to preparing for the 2012 pension reforms, which will see the introduction of auto-enrolment, compulsory contributions and the national employment savings trust (Nest) for all employers.

Last year, Capital One also introduced a new fund to its pension scheme to increase the investment options available to staff, and encourage them to select more appropriate funds for their risk profile rather than simply relying on the default fund.

The new measures were communicated to staff using a financial education and communications campaign run in conjunction with provider Secondsight.

Educating employees

Jill Cunnison, HR operations manager at Capital One, says: “One of the clear objectives of our pension governance committee was that Capital One increased knowledge across our employee base and educated them [about pensions]. We started to plan out our campaign. We really wanted to run a multi-faceted campaign and we looked at lots of different ways of communicating with employees.”

The company’s employee representative body was drafted in to provide input on developing its communications strategy.

The communications campaign about its pensions changes were run alongside the annual enrolment period for Capital One’s flexible benefits scheme. This followed the workforce-wide distribution of benefits statements, outlining employees’ total reward packages, last August.

In addition, information about the GPP was posted on the intranet site, as well as communicated via email. Posters were placed around the firm’s offices, and information provided in the staff canteen.

“Automatically increasing employees’ personal contribution is something that is quite different,” says Brumwell. “We needed a very extensive communication plan around it so employees knew what they were doing. I am very happy to use inertia to increase things, as long as people know and have really thought about having the active option of opting out. That, to me, has to be the success.”

As part of the firm’s financial education event, which took place in November and December last year, all employees were given the opportunity to attend one of 20 on-site pension presentations held over a three-week period. Staff could also make an individual appointment with an independent financial adviser (IFA) if they wanted, which was fully funded by Capital One.

Working with pensions provider

The company also worked with its pensions provider, Fidelity, to increase the use of its online pensions and retirement planning tools. Staff were reissued with pin numbers to access the site, and encouraged to attend drop-in workshops held onsite by Fidelity.

Much of the communications campaign and financial education programme was funded by Capital One’s national insurance contribution (NIC) savings gained from staff opting to increase their pension contributions, which are paid via a salary sacrifice arrangement.

More NI savings will be made through the 1% auto-increase. “All the communication activities will effectively pay for themselves with the increase in pensions and the national insurance savings made,” says Brumwell. “All of this not only supports employees in providing well for their retirement, but it is actually paying for itself. The savings will continue year on year.”

Staff surveys show increasing awareness

The fruits of the HR team’s efforts were evident in the results of two staff surveys. The first survey was conducted in August before the company’s communication and financial education drive, and the second afterwards in December.

The surveys, carried out in conjunction with Secondsight, showed that in August 2009, 28% of employees knew how much they needed to save for retirement, compared with 77% in December last year. The earlier survey also showed just 36% of employees understood their pension and what it provided, but this figure had increased to 80% in December.

Kim Rodgers, pay and benefits adviser at Capital One, explains: “We have had 76% of people stay in the pension escalator. On average, our employees have increased their pension contributions by an average of 1.22%, which means that they actually contribute 35% more than they did previously. Also, we are now above average for employee pension contributions in comparison with other companies.”

So while Capital One might be capitalising on employees’ inertia to get them saving more for their retirement, there is no apathy when it comes to reward policy-making.†

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Capital One at a glance

Capital One Financial Corporation was founded by Richard D Fairbank in 1988 and is headquartered in Virginia, US. Including the company’s newly-acquired subsidiary, Chevy Chase Bank, Capital One has about 1,000 branches in New York, New Jersey, Louisiana, Texas, Maryland, Virginia, and the District of Columbia.

It launched its first overseas operation in the UK in 1996 where it currently offers Visa and MasterCard credit cards. In December 1997, it reiterated its focus on the UK and European markets by setting up a £30 million operations centre in Nottingham, East Midlands.

The centre, which employs about 900 staff, performs a number of business functions, including application processing, customer service, product design and marketing, card issuing, collections, business development and database management.

Capital One also has international businesses in Canada. It has a total customer base of 50 million worldwide and manages loans totalling $147 billion. In 1992, the firm utilised the balance transfer concept, enabling credit card holders to move their card balances onto cards with more favourable interest rates.

For the full year of 2009, Capital One Financial Corporation reported net earnings of $319.9 million. This compares with a loss of $78.7 million in 2008. Average deposits in consumer banking declined $0.3 billion, or 0.4%, to $73.0 billion in the fourth quarter of 2009 from $73.3 billion in the previous quarter. For the last quarter of 2009, revenue was around $3,366 million, compared with over $3,170 million in 2008.

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Career profiles

Andy Brumwell, head of HR, has worked for Capital One for more than 13 years. Before joining the company, Brumwell, a trained accountant, was a finance manager at HSBC. That was his first job after completing a BSc in business administration at the University of Bath.

Jill Cunnison, HR operations manager, has been with Capital One’s HR team for 12 years. During this time, she has worked in a number of areas, including resourcing, before getting involved in HR project management, followed by a stint as HR risk manager. She moved into operations five years ago. Cunnison joined Capital One from Nottingham-based recruitment agency Kelly Services, where she spent three years as a recruitment consultant. In her current role, she works closely with Capital One’s benefits providers and outsourced HR team. The outsourced team, managed by Accenture, is the first port of call for staff, and handles all initial queries about benefits. “I still have an awful lot of vendor responsibilities, working with [benefits] providers, payroll providers and pension providers, dealing with anything from contractual discussions to escalations in day-to-day operations issues,” says Cunnison.

Kim Rodgers, pay and benefits adviser, joined Capital One 10 years ago in a customer relations role, having previously worked as an insurance representative at AI Insurance.

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Career profile: Becky Paterson

Corporate affairs associate Becky Paterson has worked for Capital One for three and a half years. She particularly values the firm’s group personal pension plan (GPP) because of the matching contributions she receives.

She also uses its cycle-to-work scheme and the ability to buy an extra five days’ holiday a year.

“The most useful benefit is the pension contributions because Capital One is contributing so much,” says Paterson. “It is one of those things you know is important and you think about it when you take up a job.

“I cycle to work every day. To actually get a bike I do not have to pay national insurance or tax on is great. I did not have to pay for it in one lump sum through the salary sacrifice arrangement. Each month the money came out, I did not notice it because it was such a small amount, but I do have this shiny new bike.”

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Benefits at Capital One:

Pension
Group personal pension (GPP) for all staff.
Minimum 4% employer contribution.
Staff contribution of up to 4%; matched at rate of 50% by firm. Total possible contributions is therefore 10%.

Healthcare
Private medical insurance core for all.
Dental cover, eyecare vouchers offered through voluntary benefits scheme.
Income protection up to 50% of salary.

Holidays
25 days given as standard, plus the ability to buy an extra five days.

Counselling
Employee assistance programme.

Family-friendly benefits
Ad-hoc flexible working arrangements dealt with on case-by-case basis.
Childcare vouchers.

Catering
Subsidised cashless card-based system in the company’s on-site canteen.

General benefits
Share plan; performance bonuses.
Life assurance.
Season ticket loans.

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