Key points
- Employers retain a bond of trust with employees: staff will go to their employer for advice.
- Anticipate their needs to create a strategy to offer valuable support at a critical time, especially defined contribution (DC) scheme members approaching retirement.
- The pension revolution has only just begun. The after-annuities era will continue to evolve. Employers need to evolve with it.
- This is a largely positive change. Grasp the opportunity to take pensions messaging to a new level. The business will benefit.
Billed as the most significant pension reform in a generation, the new rules for accessing pensions came into force on Easter Monday. How can employers help their people understand the personal impact as they navigate through a radically altered landscape?
Now that the pension revolution has arrived, the talking was supposed to stop as the principal details were, supposedly, in place.
Were conversations with employees to go quiet at this point, that would be one of the biggest mistakes employers could possibly make in the midst of what is a game-changing transformation.
At the time of writing, there are rumblings from pension managers and HR departments noting an increase in calls just after the Easter Monday in question. The volume of questions and concerns will continue to grow. In many respects, this is just the end of the beginning.
The employer-employee bond of trust
Despite the government’s promises of support and the birth of the Pension Wise ‘guidance’ service, I suspected that employees would still look to their employer for clarity on what is going on and support with the options they now have. Even now, a month in, the headlines back up my conviction.
It comes down to this. The world of work has gone through revolutions of its own but there is still an abiding relationship between employer and employee, which offers a valuable opportunity. People instinctively turn to their employer for advice on potentially life-changing decisions. And what to do with the money in their pension pot is at the top of that to-do list.
The fact that detailed information was not immediately available did not help. This was far-reaching government policy being made up on the hoof and employers needed to anticipate what to tell their people. Even if the message was “we are not making any changes to our scheme arrangements”, people still had to be told about the legislative changes and where to go for guidance.
Plan, segment, target
The first step is planning ahead. From the outside looking in, it seems simple; just tell employees what is happening and how it affects them. But there’s more to it than just the mechanics. Employers need to consider careful segmentation of their audience; targeting specific messages to specific employees and using creativity (and imagination) to stimulate and support one of the most challenging thought processes they will experience.
Employers’ first priority should be members of defined contribution schemes aged over 55 (those affected from the outset). By focusing on this group, we have been able to ‘press the loud pedal’ to really help them understand that they were the ‘first wave’.
There is still wider communication to be carried out. Everyone under 55 needs to be made aware of the general investment choices open to them but with a different emphasis, depending on where they are in the savings cycle.
And experience tells us that you cannot take investment knowledge for granted and have to strive to make it come to life. This will come back to bite organisations unless they really roll up their sleeves to make the technical accessible, understandable and engaging.
There are still grey areas that need to be addressed. Additional voluntary contributions are a defined benefit feature but are invested through DC schemes. What about deferred members of DC schemes who might be eligible to access their savings? Do they know what steps to take? These aspects need to be part of the ongoing conversation.
When all is said and done, no pensions manager wants to be confronted by someone saying: “I did not realise if I took all my savings as cash I would get whacked with a hefty tax bill and now I cannot afford to retire.” We all need to make sure no one is left exposed.
Let us not forget that this positive upheaval also represents an enormous opportunity to help organisations embed a pensions and savings culture beyond the staging date represented by Easter Monday. The idea that people will be able to claim their life savings in a way denied to them before is revolutionary. How this is communicated to them will make all the difference.
Steve Sykes is senior consultant at Shilling
