Jeanette Makings, head of financial education services at Close Brothers, discusses the trends and challenges of the pension freedoms


The excitement and anxieties about the pension reforms started after the 2014 Budget: companies recognised the enormity of the impact on their staff­ and the need to review their existing pension, retirement and wider financial education support. However, many wanted to wait until the details of the ‘guidance guarantee’ were made clear and to see what providers and other employers were planning before reacting to the changes.

The result has been that April 2015 has really been the starting point for change and there are some clear trends already emerging.


More companies are now starting to review the support they can provide for employees to help them understand the changes and their impact so they can make informed pension decisions approaching retirement. Some are also taking a di­fferent attitude towards helping employees to seek advice.

Whilst the pension reforms have been well publicised, with the increased freedoms and choice there’s a real danger that without the right support people will make poor decisions that may be unrecoverable and that will impact their financial security in retirement. Pension Wise provides a safety net of support but for many larger employers this is a supplement to their own tailored and wider reaching support programmes which not only make people aware of the changes to pensions and their choices but also provide access to advice for those that need it most.

As well as recognising the need to provide support to those approaching retirement, employers are also recognising the benefits of extending that support and in particular for those in the 10-15 years away from retirement and for all sta­ff as part of wider pension engagement exercises.

Pension Wise is only available to employees over the age of 50; however for employees who want to know what they can do to make a difference to their pension at retirement and those who may wish to take advantage of drawdown, education in the 10-15 years ahead of retirement is key, in particular around their contributions and how their pension savings are invested. It not only benefits individual employees but employers also benefit from increased engagement and improved financial wellbeing, both of which translate to the bottom line.


Although the reforms are targeted at defined contribution (DC) schemes, there has also been a knock on impact on defined benefit (DB) schemes with an increase in DB members asking for transfer values – potentially considering transferring from DB to DC to access these wider freedoms.

Employers are now asking what they need to consider with regard to communications with DB members, and what further help they need to put in place for members who are reviewing whether they should transfer their DB benefits.

Transferring from DB to DC will only ever be suitable for a very small percentage of employees (yet 33% of employers have had enquiries about it). For the vast majority of people, giving up a guaranteed income in retirement from a DB scheme will not be the recommended course of action but some may be attracted by the lure of unlocking their valuable DB benefits and getting access to higher levels of cash in the short term. Without sound financial advice, this move would be disastrous for the vast majority of DB members.

Employers and trustees alike recognise these risks and have a duty of care to ensure members considering DB transfers take advice from advisers who are qualified and experienced to deal with transfer reviews.


The Summer Budget introduced further reforms which will pose new challenges to many larger employers and those in higher paid sectors: the reduction in the annual allowance proposed from April 2016 was a surprise and will potentially impact a new slice of higher paid staff.

From next year, those earning over £150,000 in total reward will have their annual pension contribution allowance of £40,000 reduced to £10,000 when their total reward reaches £210,000. This may have a big impact in some sectors where performance bonuses, for example, make up a large part of total reward so that it will be difficult for an organisation at the start of the year. Aside from the need to communicate the tax implications and potential remedies, there is also the potential for this to have quite a significant negative impact on engagement with their pension. And given this may affect senior people, it could have a knock on effect to the bottom line.

Looking strategically, there is also the question of whether £10,000 a year is enough to build a suitable pension pot for retirement, and the longer term impact on how to reward senior management if tax relief for pension contributions is capped.

It has very far-reaching ramifications, both for individuals and across employer benefits strategies.