How to effectively manage pensions change in an organisation

Need to know:

  • Reasons for pension change projects can vary, for example, an organisation may wish to reduce the costs of its current scheme, or lower the risks involved.
  • Setting corporate objectives around what the organisation wants to achieve with its pension scheme is the first step when deciding on the most effective scheme design to meet these.
  • Communicating effectively with pension scheme members and employee representatives during a formal consultation period is essential in engaging affected employees with the changes being made and the reasons behind these.

A pensions change project is a complex task; it can involve a number of stakeholders, it may require a consultation process, and it will need to be supported by an appropriate communications strategy to inform and engage affected staff. So what do employers need to consider in order to manage a pensions change project effectively?

Reasons for change

Common drivers for change to a pensions arrangement include¬†reducing the costs of an organisation’s current scheme or reducing risks related to investments or future costly pay-outs, says Stuart Price, partner at benefits consultancy firm Quantum Advisory. This is normally seen in organisations that operate defined benefit (DB) arrangements. For example, to lower the costs and shift the scheme‚Äôs risk to the employee, an employer can¬†close its DB arrangement to new members and/or future accrual and¬†move employees to a defined contribution (DC) scheme.

Alternatively, organisations may implement a pensions change project to harmonise their pension benefits, perhaps after a merger or acquisition, or to change the contribution structure of an existing pension scheme, to better compete with industry peers, for example.

A change in senior management or an organisation’s priorities, goals and values¬†can also influence a pensions change project. Alan Ritchie, head of employer and trustee proposition at Standard Life, says: “Maybe [the employer’s] philosophy is [it] wants the best scheme because it’s all about making the scheme an asset to the business and recruiting, rewarding and retaining the best people in [the] industry. Alternatively, [it] might have changed philosophy the other way and said ‘we wanted a really strong pensions scheme but now it’s all about the cost and we want to reduce our costs’.”

Many employers carry out a¬†three-yearly review of their benefits provision¬†which can lead to a switch in provider, while some¬†may wish to amend their pension to help attract and retain employees. “[A] pension is typically second only to salary when it comes to employee benefits, so it’s important employers understand the value they are getting, as well as doing some benchmarking,” says Ritchie.

Planning the process

Before implementing any change, organisations should begin by evaluating their corporate objectives and what they want a pension scheme to achieve.¬†Scott Kendrick, director, pensions at KPMG, says: ‚ÄúWhat [employers are] trying to do is marry the reward and corporate objectives with the right [scheme] design.‚ÄĚ

The corporate objectives and over-arching decisions regarding the reasons for change will typically be set by an organisation’s board. The project is then usually handed to senior management within the reward and benefits, HR, finance, and payroll teams to implement.

It is important for employers to set a budget and a timeline of events at the start of the process. A solid project management framework should also be implemented to ensure the project is completed in an effective and timely fashion.

The next¬†step in the pensions change process may include¬†a market review, member analysis, and stakeholder mapping and planning. These investigations can¬†help employers gain insight into how their current scheme compares to competitors’. Benchmarking information on rival organisations is traditionally¬†gathered via a consultancy, although information¬†can also be found in industry data and research reports.

Once the proposed pensions change has been decided, the next step is to communicate the proposed changes to staff and employee representatives, for example, trade unions. Some pensions change projects, such as proposals to close an existing pension scheme and create a new one in its place, to increase the employee contribution to the pension scheme, or to decrease the employer contribution, can trigger a formal staff consultation process in order to meet legal requirements. Although the legal timeframe for consultation is 60 days, employers should give staff as long as they need to consider potential changes and submit feedback, says Dale Critchley, policy manager at Aviva.

Employee communications

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A¬†jargon-free,¬†multi-channel communications strategy¬†can help to articulate the case for change to employees.¬†Face-to-face briefings or seminars led by senior leaders can¬†encourage staff to ask questions. ‚ÄúEmployers have to go above and beyond providing the written materials because a lot of members aren‚Äôt going to plough through a technical pensions document,‚ÄĚ says Kendrick.

A pensions change also presents an¬†opportunity to engage employees with retirement savings more generally, says¬†Standard Life’s Ritchie. ‚ÄúNo matter what the change is, this is a chance for the employer to encourage [employees] to do the things they should do for a brighter future [and it’s] a chance for the employer to raise the profile of the pension. It‚Äôs a great chance to remind people that it‚Äôs there and what an important benefit it is.‚ÄĚ