Buyer’s guide to pensions modellers (May 2009)

Modelling tools can spark interest in pension plans by forecasting staff income in retirement, says Alison Coleman

One of the most valuable benefits that employers can offer staff is an occupational pension scheme, yet because of ignorance or apathy, many employees fail to grasp its value.

Pensions modelling tools, which carry out online calculations of employees’ pension fund values, are playing an increasingly important role in helping staff to understand the value of their plan and forecast their expected income in retirement. Modellers also enable staff to adjust their forecasts by modelling ‘what if?’ scenarios, for example, by varying contribution levels or altering their expected retirement age.

Many pension providers make modelling tools an integral part of their products, while specialist software providers can build and implement bespoke modelling tools into existing company pension plans.

Some providers can develop bespoke modelling tools for larger employers, which can be used in both defined benefit (DB) and defined contribution (DC) schemes.

Karen Heath, head of internal communications at Anthony Hodges Consulting, says: “[Employers] can educate and inform staff about the value of their pensions, but these modelling tools encourage them to take more control of their finances and add an extra dimension to the benefits offering.”

Some modellers also enable staff to take account of previous benefits, current fund values and the way future contributions will be paid, whether in a fixed amount or a varied rate according to age, length of service or linked to salary.

James Biggs, associate director at Jelf Employee Benefits, says: “Some tools allow you to factor in the value of other funds you have. Members can be proactive and use the system to make changes to their investment, free of dealer costs.”

Access to modelling tools is typically through a company intranet or internet, but most providers favour the latter. “This allows field staff and those who do not have immediate computer access in the workplace to use the modelling facility when they are at home,” says Heath.

Although modelling tools are mainly associated with pension schemes, they are also available around other benefits. For example, some tools allow staff to calculate the tax and national insurance savings made on perks offered through salary sacrifice, such as pensions and childcare vouchers. Modelling tools can also be used in flexible benefits schemes, enabling staff to model how to spend their allowance before committing to their choices.

The provision of these tools alone is unlikely to persuade people to take more interest in their pensions and benefits and additional education and support will be required.

Biggs adds: “The tools are so simple to use, yet we find people still need a lot of encouragement to use them. Getting the best out of a pension or benefits scheme that includes a modelling facility requires a sustained period of education.”

Product File: Pensions modelling tools:

What are pensions modelling tools?
These are online calculation tools that enable employees to understand the value of their pension plan and forecast their expected income at retirement.

Where can employers get more information?
Independent pensions and benefits consultants can advise on the most suitable modeller for an organisation. Many providers offer online information on pension modelling tools, while some have free calculator tools to try.

Who are some of the main providers in the market?
Most of the large pensions consultancies and corporate advisers can implement bespoke pension modellers, while specialist providers include Anthony Hodges Consulting, Bluefin and Clarity Global. Most pension providers offer integrated modelling tools; some of the players in this area are Axa, Scottish Equitable and Scottish Widows. Friends Provident, Hargreaves Lansdown, Jelf Employee Benefits, JP Morgan Invest, Punter Southall and Xafinity Claybrook also offer modelling tools.