Companies need to upgrade their pension scheme in line with their workforce and the changes in work, retirement and pension rules
Changes in pensions regulations and tax rules have been introduced on a piecemeal basis by politicians and regulators over the past few years AND many companies have had to adapt in a tactical way, in order to remain compliant. Few have had the time or resources to think about what the business really needs from their pension.
Mercer is telling people ‘it’s time to reboot’ because the original model has changed beyond recognition. Whereby employees spend their career in one workforce, have a fixed retirement age and buy an annuity no longer exists. The whole world of work is changing, it is common to have five generations in the workforce nowadays with different needs, expectations and ambitions.
Moreover the removal of the compulsory retirement age has changed the goalposts completely from the employer’s perspective. There is no longer cliff-edge retirement, with really profound implications both for the corporation and the individual.
It is now far harder to plan workforce and talent succession. Do businesses need – or want – older workers? Would they be a hindrance or benefit to the company? And if so, what can they do about this? Companies must ensure they have the right skills, aptitude and talent – but they can’t just tell people to leave!
That’s why a reboot is necessary, because retirement is no longer just about pensions – companies need to think much more holistically and start joining up pensions with their broader reward strategy.
If a company is trying to attract graduates, for example, is putting 10% into a pensions pot valuable, or should they be putting it into a corporate ISA? When you have five different generations in the workforce, one size doesn’t fit all anymore. Companies have to think differently, Mercer estimate that 10% of all employees will be caught by the reductions in Life Time Allowance, for senior staff or for sectors with higher than average contribution rates and salary roll, this increases significantly; for the growing numbers of impacted employees pensions won’t be a benefit beyond a certain point.
The problem is to join the thinking up and create a single vision of what the pension scheme and retirement savings plan is in place to do. They need to think about elements such as sector benchmarking, the company’s approach to recruitment, retention and retirement, which is effectively a resignation date.
Employers also want do the right thing by their employees both in the savings and retirement phases – so they need to find a quality solution that doesn’t cost a fortune.
So as well as being compliant, employers must also work out what their post-retirement strategy is – for example, is it within the Plan or external via the retail market, or a master trust solution?
As part of that transition from one arrangement to another, employers are starting to ask if members are valuing and understanding what they’re getting.
Rebooting the Pension plan presents an ideal opportunity to re-launch the benefit for employees and secure genuine engagement. In the UK (and globally), many employers have failed to engage employees well on pensions.
Mercer’s global research on engagement and employee decision making has delivered tried and tested approaches. Employees receive the right information at the right time, at each stage of their pension plan membership through multiple channels including: digital on a pull/push basis; and, in the workplace on a face to face basis. We need to ensure employees value their pensions and help them take control of their financial wellbeing. Employers also need to embrace today’s pension freedoms and reboot them so they deliver value to all.
To find out more visit www.reward-guide.co.uk or email Mark at email@example.com