The Big Question: Is the stock market fall turning staff off pension savings?

We ask the experts for their answers… have your say online.

 

ResearchDev Raval, director of reward at BSkyB:

The recent fall in global stock markets is only the latest challenge to the ‘pension’ brand. Recent headlines have told us of changes to state, private and public sector plans and stories of poor pensioners because of rising inflation. So you would not be surprised to see a stampede out of pensions. In practice, however, and certainly at Sky, we have not seen this. The joiner run rate to the pension is unchanged and there has been no increase in plan drop-outs.

I think the market fall is not turning people off because we have been here before. The market fall in 2008 was the shock event when we did get a number of concerns being raised. This time there was hardly any reaction; have people got used to this?

The general hardening of the economy globally is additionally setting lower performance expectations.

Pensions are still a great benefit. For example, higher-rate taxpayers already benefit by 40% versus any investment made with their net income.

At Sky, in the wake of the earlier crash, we reviewed our plan and moved to a more diversified investment strategy, which has helped to mitigate falls. The communications for that in 2010 and our continual dialogue, such as through our employee forums, have helped us to manage concerns.

If anything, this situation reinforces the need to keep engaging employees and to keep up a continuous dialogue on pensions. It is the only way to get over your core messages on why pensions are important.

 

ResearchHamish Wilson, managing director at HamishWilson:

Yes. You do not need to be a pensions expert to reach this conclusion. Pensions are front-page news and when employees read in their papers that schemes have lost billions, their confidence in pensions will be dented.

Should the market fall turn employees off pensions savings, though? Poor returns will deter any form of savings, but pensions do have a unique combination of qualities.

Pension savings are long term; short-term market shifts should be less of a concern and could represent an opportunity for those purchasing assets.

Pensions savings are tax-efficient; perhaps the tax advantage is less now, but some advantage remains.

Defined benefit occupational schemes protect employees from market risks, at the expense of the employer, which may be better placed to withstand short-term market shifts.

Defined contribution schemes are clearly very exposed to market shifts, but some protection can be had through investment strategies aimed at reducing the impact of market downturns.

There is no doubt that, despite these qualities, market falls are bad for pensions. Sustained market falls, which we have been experiencing recently, can cause irreparable damage to the confidence employees and employers have in pensions.

Organisations are struggling to maintain decent pension provision for their employees and employees are turning away from pensions in favour of other means of saving for their retirement. The challenge facing the pensions
industry is to adapt to address this problem and rejuvenate the confidence in pensions saving

 

ResearchJoanne Segars, chief executive of the National Association of Pension Funds:

The short answer is that it might, but it should not. Of course, bad headlines about stock market falls are bound to affect people’s confidence in any sharebased investment. But people should not let a short-term run of bad news turn them off what is still the best longterm way of saving for their retirement.

Pension funds are not immune to share price falls, but only 17% of their money, for defined benefit (DB) schemes, is in UK equities. The National Association of Pension Funds’ member pension funds also invest in government and company bonds, property, infrastructure and other assets. Their investments are spread across the world’s major economies. This diversification protects members.

And when it comes to pension saving, it is the long-term trend that really matters.

Those in private sector final salary pensions should remember that short-term stock market falls do not change the rights they are building up with each year of service. A lower FTSE today does not mean a lower pension tomorrow.

Those with defined contribution (DC) pensions hold individual pots that are affected more directly by the markets. But the long-term nature of pensions remains a key factor in helping them to ride out short-term volatility.

Many people in DC schemes still have many years for their pot to recover and grow. Those nearing retirement will, more than likely, have been moved away from exposure to the stock market into safer assets such as bonds and cash.

Pensions remain an excellent way of saving for retirement. Whatever the market figures, it is vital that more UK employees save for their retirement. Workplace pensions should remain their number one choice.

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