Andrew Pennie, marketing director and head of Pathways, Intelligent Pensions, asks how employers can harness employee engagement with their pension
The new pension freedoms, in force since April, have created a level of interest and awareness in pensions and retirement that we have never seen before. But with freedom, choice and opportunity comes a host of new risks and complexities for employees. Against a backdrop of increasing life expectancy, the decisions people make with their pensions have never been so crucial.
So are you doing enough to help your employees take advantage of the new pension freedoms?
The chances are the answer to this question is ‘No’. The freedoms were only recently passed into law and unlike automatic enrolment, there are no hard and fast rules about how and when to comply. However, many existing retirement options and default strategies are likely to be unsuitable for a growing number of staff, so you need to take action, and quickly!
Many schemes are facing a dilemma about how far they should go to help their employees with pension freedoms. On the one hand, providing access to the full suite of freedoms create risks. But on the other, to provide little or none of the new pension freedoms and simply direct people to Pension Wise could look like letting your employees down.
Some will choose to make flexi-access drawdown or UFPLS available under the scheme, but those that do will have to consider the risks of people underestimating their life expectancy and running out of money. It is hard to see why a scheme would want to do this without incorporating a safety net of regulated advice. Given an established post-retirement advised market already exists, most schemes would do well to focus instead on setting their employees on the right path towards retirement.
So let’s take a look at what needs to be done if you are to help employees maximise the new freedoms. The pyramid above shows a scale of measures that can be taken to improve retirement decision making and give employees the best chance to achieve a quality retirement. To climb to the top of the pyramid requires greater use of advice to deliver tailored solutions to match the individual needs and objectives of each and every employee.
Getting to the top of the pyramid is achievable, despite a widely-held misconception that it’s too expensive to deliver tailored advice solutions. ‘Focused advice’ – delivered before retirement – can help schemes help their employees for very little, or even no, expense.
Focused advice recognises people have different needs, objectives, attitude to risk, personal circumstance and financial positions. As such, everyone’s need for cash and income in retirement will be different. By understanding all of these factors, it’s possible to deliver a personal recommendation to an employee about what retirement solution is right for them and how best to invest their pension to achieve it. Furthermore, focused advice is regulated by the FCA and so the employee has recourse in the unlikely event the advice was wrong – perfect reassurance for employers and trustees.
Focused advice solutions can be delivered for as little as £150 per employee and so fall within a special HMRC allowance that exists for ‘retirement planning’ advice. As such, the payment, if employer funded, would not be a P11D benefit to the employee and would still be an eligible business expense. What’s more, a company could simply opt to facilitate focused advice and let employees pay for it, possibly by salary sacrifice – making affordable regulated advice available to employees in this way is far beyond what most people could access through their own efforts.
Pension freedoms are here to stay and employee outcomes will continue to come under the spotlight. If you want to meet your obligations under the DC code and help your employees to achieve the best possible retirement outcome, I strongly recommend you investigate focused advice solutions and see if you can’t leap to the top of the pyramid.
As specialist retirement planning advisers, we launched a focused advice solution called ‘Pathways’ earlier this year. To arrange an online demonstration please email firstname.lastname@example.org or visit www.intelligentpensions.com.