Reward and WEALTH at work’s round table looked at the impact of the pension freedoms and asked what employers should be doing in the financial education space
NF: Neil Fraser, head of pensions and benefits, Schroders
JC: John Chilman, group reward and pensions director, First Group
JW: James Walsh, policy lead: EU and international, PLSA
DC: Dermot Courtier, head of group pensions, Kingfisher
KD: Katherine Dandy, partner, Sackers
JWL: Jonathan Watts-Lay, director, WEALTH at work
MR: Melinda Riley, head of policy and technical, TPAS
First impact of freedom
MR: The first tranche of people we saw after freedom and choice came in were the result of pent-up demand – people who were desperate to cash their pots in, and had been waiting for the date. Now we’re getting into business as usual and people are having more measured conversations about what their options might be.
KD: Employers and trustees are taking their time deciding what to offer to their members, and that’s partly because the changes were introduced with very little notice, so they’ve not had time to prepare. There is a Catch 22 situation, where schemes are waiting to see what the demand is for extra freedoms, but those members who want to use those freedoms now are unable to make full use of what they were told they would get from April.
JWL: One of the things that’s beginning to emerge now is that it’s clear that schemes will not be able to offer the full range of flexibilities for a number of reasons around administration, risk and cost. However, I think the demand will be there, because of the ageing population.
DC: Since April we’ve seen about a 20% increase in the number of requests for retirement quotes and transfer value quotes – but it does appear that the rush is now over.
JW: As schemes wrestle with this challenge about what solutions to develop, they don’t know what the demand is going to be, and if it’s worth them putting their time, effort and resource into developing solutions.
JC: Having a legacy defined benefit scheme, we had a few questions about transfers and access to money – but the tax implications were not clearly understood.
NF: There are a small number of people for whom a DB transfer is actually the right option. But in a varied workforce, it’ll take a number of years before you really understand what the response is to the changes.
Why do employees need education?
KD: It’s got to be a balancing act between giving people the freedom and choice and giving them the equipment they need to exercise their freedom. And the better we are with financial education, the better we can combat the scamming issue, whereby people are being conned out of their pension pots.
JWL: The pension is the biggest benefit you give an employee and they save into it for 40 years – but through that time it’s just been a cost to them. At the point that they can get this benefit, you have some responsibility to make sure that your members get education.
NF: There have been a few irresponsible headlines around cashing in your pension or using it as a bank account, so people have been given false expectations, and there’s a knowledge gap. It’s partly a behavioural thing – the reality is that people prefer to read a newspaper headline than a technical document from their provider. But the problem is getting people to focus early enough – and finding the balance between them having time to save but also not yet knowing what they want from their retirement.
How can employers engage their workforce?
JC: You need to have a range of tools and flexible structures that can allow your employees to engage and self-serve, so they have the ability to have the right conversations at the appropriate times.
MR: Employers need both an underpinning programme, and also an ability to engage with an individual when they choose to self-serve. It’s about being able to react when a member wants to choose individually.
JW: If people haven’t been actively involved with their pensions savings, then they start getting information about options and choices, it all sounds very foreign to them. You need to make sure people feel comfortable with their pension savings from an early point in their career, so that when it comes to making choices, it doesn’t feel like a new landscape to them.
KD: It’s a legacy of DB – decisions have been made for people around contributions, investments and retirement choices. In this new age, trustees, employers and individuals all have a responsibility. But we’re in a transitional period where people don’t know they’ve got to make the decision.
JWL: We need to get people to save into their pension – but often they want to save up for a holiday, or spend on their day-to-day living. So in the workplace, we need to make pensions more affordable and accessible.
DC: We have a five-year education plan, according to ages and life stages in our workforce, and instead of talking about a ‘pension’, we’re talking about saving for their future. We’ve also done it in a fun and engaging way – animations, DVDs and a game.
JW: It’s great to use different techniques to engage people in different ways, and it’s all part of making people comfortable with the idea of long-term savings and their future.
JC: Tools like calculators can be incredibly helpful in terms of starting the conversation and showing employees their expectations of their income. It’s about having that range of communications that fit the needs of the different segments of your organisation.
Is financial education about more than pensions?
NF: We have a programme that focuses on all stages of your career. We run sessions, for example, for graduates on their student loans, and we look at early, mid and late career, with different focuses on different life stages in that.
DC: As part of our Save for the Future campaign, we did a video linking it to our share plans, Save As You Earn, and SIPP scheme.
JWL: In the long term it’s about understanding what the company will give you, what the taxman will give you, and how you can free up some money to make those contributions in the first place. In terms of the short or medium term, it’s about looking at what else is available in the workplace – share schemes, Save As You Earn schemes – and with these you can also transfer them into other vehicles such as ISAs or pension schemes. At the point of retirement there are a lot of people out there with assets all over the place, and it’s really important that they know how to draw all of those assets down. We give people examples of what retirement income they want, and then look at their assets, which bits are taxable and their personal threshold – and then we demonstrate to them how, depending on how they spend their money, they can spend less on tax and increase their personal allowance.
What’s the future?
NF: The biggest challenge is taxation change, annual allowance changes, lifetime allowance changes – the constant change puts people off, and they lose faith.
JC: The trust issue is very important – we need more stability because people have lost faith in pensions, because the goalposts keep moving.
JW: I think the big opportunity is more people saving more in pensions. Auto-enrolment has been a huge success from that point of view, and encouraged people to save who have never saved before.
DC: Auto-enrolment has been very successful – but there are a lot of people not covered by it, who don’t meet the salary or age criteria, and who will be totally dependent on the state pension in retirement. We want continuity in the long term about what the saving model for retirement needs to be.
KD: It’s a huge challenge to get people to understand their options, so it won’t just be a huge turn-off at a time when it needs to be anything but. We need a rebranding of pensions to make it attractive and for people to see that it will translate to a better life for them in old age.
JWL: One of the biggest challenges is for trustees – many still have a wait-and-see attitude, and they need to think about the process they’re going to put in place. They should now be putting a model retirement process in place, and organising education and advice.
MR: The opportunity for us is fantastic – TPAS loves having conversations with people about pensions!